What lands with investors in cost of capital disclosure is not the cost-of-capital figure itself. It is the resolution with which management recognizes the gap between that figure and its own ROIC, and how it plans to close it. Companies that disclose the number alone are not being rewarded for it.
What Does Cost of Capital Disclosure Actually Require?
In March 2023, the Tokyo Stock Exchange (TSE) requested that all Prime and Standard Market companies take "Action to Implement Management that is Conscious of Cost of Capital and Stock Price," and has continued to revise its reference materials since, incorporating feedback gathered from investors (TSE, 「『資本コストや株価を意識した経営』に関する課題解決に向けた企業の取組み事例の公表等について」[Notice on the Publication of Case Studies of Corporate Initiatives Toward Resolving Challenges Related to "Management Conscious of Cost of Capital and Stock Price"], December 26, 2025, https://www.jpx.co.jp/news/1020/20251226-01.html).
What the request asks for is a three-stage cycle — (1) current-state analysis and evaluation, (2) consideration and disclosure of initiatives, and (3) dialogue and updates — not a one-time publication of a cost-of-capital figure (same URL, Attachment 2, 「投資家の視点を踏まえたポイント」[Key Points Reflecting the Investor's Perspective], 3rd edition, December 26, 2025). The same material states plainly that a cost of capital derived through CAPM or similar methods is "no more than one estimate," and what matters is "whether that recognition is aligned with shareholders and investors."
Why Aren't Companies That Disclose Numbers Alone Rated Highly?
TSE's published 「投資家の目線とギャップのある事例」[Examples with a Gap from the Investor's Perspective] (illustrative composites drawn from real disclosures, initial edition November 21, 2024, republished December 26, 2025, same URL) sets out the typical pattern that fails to earn credit: disclosure that stops at a single line — something to the effect of "we have confirmed that capital profitability exceeds the cost of capital" — without touching on the specific level achieved or any target, is read by investors as failing to "deepen the dialogue." Disclosure that merely lists initiatives as bullet points draws the same criticism: "the initiatives listed lack the specificity to distinguish the company from peers, and without quantitative explanation, investors cannot judge how they will contribute to future corporate value." The dividing line is not whether a number is present, but whether the disclosure explains the validity of the level and the path to close the gap.
What Separates Strong Disclosure from Box-Ticking?
The clearest illustration of that gap is DAIHATSU INFINEARTH MFG.CO.,LTD. (Japanese name: ダイハツインフィニアース; TSE code 6023, Standard Market). The company first disclosed its "mid- to long-term vision" in November 2022, and investors responded that "the current-state analysis and evaluation are insufficiently shown," that "management targets diverge from the investor perspective," and that "the investment plan lacks specificity" (TSE, Attachment 3, 「課題解決に向けた企業の取組み事例集」[Collection of Corporate Case Studies Toward Resolving Challenges], initial edition, December 26, 2025, Case #6, same URL). In its November 2023 update, the company set out its recognized cost of capital alongside a current-state analysis of capital efficiency and market valuation, declared that it had achieved capital efficiency exceeding its cost of capital, and laid out a concrete five-year capital allocation policy. The result: investor meetings rose from roughly 10 a year in 2022 to roughly 80 a year in 2025, and market capitalization expanded from ¥20.4 billion before the initiative to ¥91.9 billion in 2025 (same document). What separates strong disclosure from a box-ticking exercise comes down to four things: the specificity of the current-state analysis, alignment between targets and the investor perspective, the concreteness of capital allocation, and the consistency of the growth story.
How Should Companies Explain the Gap Between ROIC and Cost of Capital?
The gap between ROE and the cost of equity is known as the "equity spread"; the gap between ROIC and WACC is the "EVA (Economic Value Added) spread." Widening this spread is treated as the core driver of mid- to long-term corporate value growth (Attachment 2, cited above, same URL). EBARA CORPORATION (Japanese name: 荏原製作所; TSE code 6361, Prime Market) analyzes and evaluates its ROIC-WACC spread by segment and presents segment-specific measures aimed at widening it. Mitsubishi Electric Corporation (三菱電機; TSE code 6503, Prime Market) discloses a quantitative ROIC outlook by segment, then walks through the initiatives and growth strategy behind the improvement in a structured narrative. KANRO CO., LTD. (Japanese name: カンロ株式会社; TSE code 2216, Standard Market) has built an "ROIC tree" that decomposes company-wide ROIC down to field-level KPIs, and runs it as an annual cycle: setting targets at the start of the fiscal year, reviewing progress quarterly, and sharing the causes of any shortfall at management meetings (Attachment 3, cited above, Case #5, same URL). Investors are rewarding not just the disclosure of a gap, but the operating mechanism built to close it.
How Should the Gap Be Tied to the Business Portfolio?
An explanation of the gap only reads as management resolution once it is broken down to the level of the business portfolio. Mitsui Chemicals, Inc. (三井化学; TSE code 4183, Prime Market) sets out the direction of its portfolio transformation and then explains, segment by segment, its mid- to long-term targets, KPIs, and business strategy (Attachment 2, cited above, same URL). Kyushu Electric Power Company, Incorporated (九州電力; TSE code 9508, Prime Market) visualizes even its non-financial initiatives through an ROIC tree, showing explicitly how they connect to corporate value. A disclosure that shows only a single, company-wide ROIC figure leaves investors unable to tell which businesses are falling short of the cost of capital and which are lifting the average — and tends not to move their assessment.
When Is the Right Time to Update Disclosure?
TSE expects at least annual progress analysis and updates after initial disclosure. What it looks for is not a simple refresh of the figures, but an analysis of the gap between plan and actual results, and refinements informed by investor feedback. Nor is the review timing fixed to the formulation or revision cycle of the mid-term management plan: if a gap with investor expectations emerges, or the external environment shifts, companies are expected to revise flexibly mid-cycle (Attachment 2, cited above, pages 22–27, same URL). In practice, NIPPON EXPRESS HOLDINGS, INC. (TSE code 9147, Prime Market) and SANKYU INC. (Japanese name: 山九株式会社; TSE code 9065, Prime Market) both refined their targets and initiatives mid-cycle after their price-to-book (P/B) ratios continued trading below 1.0x even following the formulation of a mid-term plan.
FAQ
Q1. Is there a fixed methodology for calculating cost of capital?
No. CAPM is widely used, but TSE's own materials position a CAPM-derived figure as "no more than one estimate." ITOKI CORPORATION (Japanese name: イトーキ株式会社; TSE code 7972, Prime Market) had a CAPM-derived cost of capital in the 7% range, but deliberately adopted a stricter 9–10% range after hearings with ten major institutional investors (TSE, Attachment 2, 「投資家の視点を踏まえたポイント」[Key Points Reflecting the Investor's Perspective], 3rd edition, December 26, 2025, https://www.jpx.co.jp/news/1020/20251226-01.html). The emphasis tends to fall less on the calculation model itself than on calibrating the level with investors directly.
Q2. Does cost of capital disclosure have to appear in the Annual Securities Report?
TSE's request does not confine disclosure to any single document. The case studies published alongside it show disclosure spread across multiple channels — the Corporate Governance Report, the integrated report, and earnings results briefing materials, among others (same URL). Rather than mandating inclusion in the Annual Securities Report uniformly, the expectation appears to be a consistent explanation across whichever channels a company primarily uses to reach investors.
Q3. What is the risk of not disclosing cost of capital?
Disclosure that remains formulaic or thin carries the risk that dialogue with investors never deepens. TSE's materials quote investor feedback on companies that decline individual meetings without reasonable grounds: such companies, in the investor's words, "can no longer be said to be complying" (TSE, 「投資家の目線とギャップのある事例」[Examples with a Gap from the Investor's Perspective], initial edition November 21, 2024, republished December 26, 2025, same URL). Fewer opportunities for dialogue tends to also push further away the chance to set effective targets or improve market valuation.
Summary
| Question | Key takeaway |
|---|---|
| Disclosure framework | A three-stage cycle: current-state analysis and evaluation → consideration and disclosure of initiatives → dialogue and updates |
| Numbers-only disclosure | Without a stated level or target, it is read as failing to "deepen the dialogue" |
| A passing example | DAIHATSU INFINEARTH's concrete current-state analysis, capital allocation, and growth story lifted investor meetings from ~10 to ~80 a year |
| Explaining the ROIC gap | Break the equity/EVA spread down by segment and to field-level KPIs (EBARA, Mitsubishi Electric, KANRO) |
| Timing of updates | Update at least annually, and revise mid-cycle when a gap with investors emerges or the external environment changes |
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