TOKYO -- Nikkei Inc. and Tokyo Stock Exchange announced on Friday that they will revise their criteria for selecting the component issues of JPX-Nikkei Index 400, a stock index they jointly develop and operate.
Nikkei and TSE will attach greater importance to return on equity -- the ratio of net income to shareholders' equity -- starting with a periodic review of the constituent stocks in the summer of 2022.
When narrowing down targets for selection under certain conditions, Nikkei and TSE will significantly downgrade their assessment of not only issues whose ROE are negative but also those whose ROE are in the bottom 10%.
The eligible market of the index will become Prime, Standard and Growth markets from the reorganization of the TSE into three new market segments in April 2022.
In addition to profitability, Nikkei and TSE will strengthen their assessment of corporate governance, which is drawing increasing attention from investors, under the revised selection criteria.
Stocks of companies will be evaluated highly if a majority of their directors are appointed as independent outside directors.
A high evaluation is currently given to stocks of companies if at least one-third of their directors or a minimum of three directors are appointed as independent outside directors.
A system to highly evaluate companies that appoint at least one female corporate officer will also be introduced.
The selection criteria for JPX-Nikkei Mid and Small Cap Index will also be revised, in the same way as that for JPX-Nikkei Index 400.