Nikko Research Center, Inc. developed the Governance Research Scores (GR Scores) in order to evaluate the strength of corporate governance in Japanese companies. The GR Scores measure distance from the benchmarks, that is, governance best practices (=100%). We adopt Japan’s Corporate Governance Code as the domestic standard and the ICGN Global Governance Principles as the global standard.
We put domestic and global scores on the top market-cap 100 companies as GR Scores 2017, using the data as of December 31, 2016. As a result, while the domestic scores are nearly half, 49.1% on average and distributed from 22% to 77%, the global ones are 21.0% on average and more than half the companies stay between 10% and 20%. The subscores by theme show that “disclosure of remuneration policies and structure,” “Board leadership and independence,” as well as “Risk oversight” are lagging in general.
Furthermore, we analyze the financial characteristics of companies with high GR scores. There is statistically no difference in profitability and firm values. Regarding ownership structure, companies with high domestic scores have high probability of being controlled while companies with high global scores tend to have high ratios of cross shareholdings.