Japanese Companies Delist at Fastest Pace in Over a Decade

Japanese companies are delisting from the Tokyo Stock Exchange at the fastest pace in over a decade, driven by pressures to effectively utilize capital and a surge in mergers and acquisitions (M&A) and management buyouts (MBOs).

According to data from the Tokyo Stock Exchange since 2014, 59 companies have delisted or announced delisting plans in the first half of this year, surpassing the 51 companies in the same period last year and setting a new record. If this trend continues, the annual delisting number could exceed the 2024 historical record of 94 companies.

This phenomenon is driven by a series of corporate governance reforms initiated by the Tokyo Stock Exchange, including requirements for listed companies to enhance shareholder returns, improve valuations, and reduce excessive cross-holdings. In 2022, the exchange restructured its stock market into three segments: Prime, Standard, and Growth, corresponding to large, medium, and small companies, respectively. The exchange has urged listed companies to improve governance and take measures to boost valuations.

Companies that do not meet listing standards have until the end of March to comply, or they will face delisting as early as October 2026. The Tokyo Stock Exchange has emphasized that its priority is the quality, not the quantity, of listed companies.

Last year, the number of listed companies on the Tokyo Stock Exchange (excluding the professional market) fell to 3,842, the first decline since the exchange merged with the Osaka Stock Exchange in 2013. It is estimated that by the end of June, the number of listed companies could further decrease to 3,808.

These reforms have driven strong performance in the Japanese stock market over the past few years, emboldening activist shareholders to push for changes in corporate management. As activism heats up, investor calls for higher returns, including corporate stock buybacks, are growing louder.

Additionally, many companies choose to delist after being acquired by other companies or investment funds. The 2023 best practices guide for corporate acquisitions issued by the Ministry of Economy, Trade, and Industry has also fueled the M&A boom.

In cases where a company and its subsidiaries are both listed, the parent company may acquire the subsidiary to avoid governance concerns. Such arrangements were previously common in the Japanese stock market and were criticized for potential conflicts of interest. For example, Japan's largest telecommunications company, NTT, plans to acquire its subsidiary, NTT Data Group Corp.

As the cost of maintaining a listing increases and activist shareholders demand higher dividends and policy changes, MBO transactions are on the rise. For instance, the clinical trial support company I’rom Group collaborated with the U.S. investment firm Blackstone Group to privatize its shares.