How to Write a PBR Improvement Plan
— Three Disclosure Conditions the Tokyo Stock Exchange Actually Rewards

What the Tokyo Stock Exchange (TSE) actually rewards in a low-PBR improvement plan is not the novelty of the measures. It is whether three conditions — a specific current-state analysis, numerical targets tied to cost of capital, and an annual progress-disclosure cycle — are presented together, as one integrated package. Plans missing any one of the three tend to be read by investors as a box-ticking exercise.

What Should a PBR Improvement Plan Actually Contain?

The "low-PBR improvement plan" refers to disclosure under a request the Tokyo Stock Exchange issued in March 2023 to every company listed on the Prime Market and Standard Market: to disclose their response toward the "Action to Implement Management that is Conscious of Cost of Capital and Stock Price." TSE does not prescribe a specific format — earnings briefing materials, integrated reports, and corporate governance reports are all acceptable vehicles. What TSE does specify is a three-step structure for the expected response — current-state analysis and evaluation, plan formulation and disclosure, and implementation of initiatives — communicated to investors in clear, accessible terms (source: Tokyo Stock Exchange, "Release of Points and Examples of 'Management that is Conscious of Cost of Capital and Stock Price' Reflecting Investors' Perspectives," February 1, 2024, https://www.jpx.co.jp/news/1020/20240201-01.html). As of the end of 2023, per the same release, 49% of Prime Market companies and 19% of Standard Market companies had made such disclosures.

The Three Disclosure Conditions Investors Actually Reward

TSE's release draws on interviews with more than 90 investors — roughly 30% domestic and 70% overseas — weighted toward active funds focused on mid- to long-term corporate value creation. It sets out what these investors expect from companies, examples that earned credit for meeting those expectations, and examples where disclosure fell short of investor expectations. Distilled, the disclosures investors reward consistently share three traits: specificity in the current-state analysis, numerical targets explicitly linked to cost of capital, and a progress-disclosure cycle running at least once a year. Miss even one of the three, and investors tend to read the plan as a "box-ticking" response whose actual effectiveness can't be judged.

How Specific Does the Current-State Analysis Need to Be?

TSE's release lays out three checkpoints for the current-state analysis. First, capture cost of capital from an investor's vantage point — for instance, by disclosing the calculation model and parameters used to derive cost of equity. Second, go beyond simply checking whether PBR (price-to-book ratio) is above 1.0x or ROE is above 8% — evaluate the company from multiple angles, using peer/industry comparisons, time-series trends, and a matrix that plots capital profitability against market valuation. Third, examine whether the balance sheet itself is being run efficiently, including whether the company is sitting on excess cash. As examples of good practice, the release cites Ebara Corporation, which analyzed its ROIC-WACC spread by business segment, and Aska Pharmaceutical Holdings, which had already hit its 8% ROE target yet was still trading below 1.0x P/B — and analyzed why. On the other side, the release flags a recurring gap versus investor expectations: companies that treat "PBR is already above 1x" or "ROE already clears the target" as a reason to stop the analysis there.

Setting Numerical Targets — How to Link Them to Cost of Capital

TSE's release makes clear that investors want to see companies working not only to raise capital profitability, but also to actively lower their cost of capital — tracked through the "equity spread" (the gap between ROE and cost of equity) and the "EVA spread" (the gap between ROIC and WACC, i.e., economic value added). On the disclosure side, PLANT is cited for decomposing its target ROE via DuPont analysis — net margin × asset turnover × financial leverage — and mapping specific initiatives to each factor. Seino Holdings worked backward from its targeted 2028 ROE level to factor-specific initiatives. Ebara Corporation and Concordia Financial Group used logic trees to make the connection between individual initiatives and target achievement explicit. Conversely, the release flags two recurring gaps: disclosures that simply list initiatives without showing how they connect to the target, and executive compensation structures that remain disconnected from mid- to long-term corporate value creation.

Pass and Fail Patterns Among Published Improvement Plans

Organizing TSE's cited examples and gap cases reveals a clear pattern of what gets rewarded and what doesn't. On the pass side: companies such as Idemitsu Kosan and Concordia Financial Group disclosed their cost-of-capital calculation model and parameters to build shared understanding with investors; Ebara Corporation and Aska Pharmaceutical Holdings pushed their current-state analysis all the way down to root causes; and Kobe Steel, Sanyo Shokai, Yamazen, and Inabata & Co. disclosed the feedback they received through shareholder dialogue alongside how they subsequently responded to it. On the fail side, the release flags four recurring patterns: (1) withholding cost-of-capital disclosure out of concern that investors will call the calculation "off"; (2) relying solely on one-off measures such as share buybacks or dividend increases; (3) listing initiatives without demonstrating how each contributes to the target; and (4) maintaining an executive compensation structure whose incentives are not tied to mid- to long-term corporate value creation. What all four have in common is that the company can point to "something it did," while still falling short of the accountability investors are actually asking for.

How Should the Progress-Disclosure Cycle Be Designed?

TSE's release positions "analyzing progress and updating disclosure annually, at least once a year," after a plan has been put into practice, as the final step in the overall response. Alongside this, TSE separately requested — also in March 2023 — that every Prime Market company "advance and disclose dialogue with shareholders." The expectation there covers disclosure of the dialogue conducted during the preceding fiscal year, how opinions raised in that dialogue were fed back to the board of directors, and what changes the company subsequently incorporated as a result (same source as above). Designed in line with what TSE's release expects, a progress-disclosure cycle should update not just year-over-year figures at each earnings cycle, but also the qualitative side — how points raised through dialogue were reflected in the plan — on the same annual basis.

FAQ

Q1. Is it enough to cover the PBR improvement plan inside earnings briefing materials?

TSE does not prescribe a disclosure format, so including it within earnings briefing materials is fine in itself. What matters is whether the content covers all three conditions — current-state analysis, numerical targets, and progress updates. A fragmentary mention tucked into one part of a single document tends not to register with investors as a credible response.

Q2. What happens if the plan doesn't include a concrete numerical target?

TSE's release expects companies to decompose their target metric and make the link to each initiative explicit. Disclosures that simply list initiatives without clarifying how they connect to the target are flagged in the release as a gap versus investor expectations, and they make it harder for investors to gain confidence that the initiatives will actually work.

Q3. How many years after disclosure does a company need to show results?

TSE's release sets an expectation of "analyzing progress and updating disclosure annually, at least once a year," but it does not require results within any specific number of years. What's assumed is a continuous update cycle running at least once a year.

Summary

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