TOKYO -- Companies that put their top executives in front of the camera may be in for stock-market success, a new study suggests, as investors seek greater disclosure, and not only in finances.
Among listed Japanese companies with market capitalization between 10 billion yen and 100 billion yen ($91 million to $910 million), those whose websites featured pictures of top executives' faces performed more than 70% better on the market than the group as a whole from the end of 2012 to the end of March 2017. Conversely, those that did not post their president or CEO's picture performed 14% worse than the group average.
"Companies with few pictures tend to be hesitant about disclosing information in general," said Hideto Fujino, president of Rheos Capital Works, which collaborated with visual marketing firm Amana and SMBC Nikko Securities to examine links between executive photos and share performance. Looking back at scandal-plagued companies, the presidents' photos were nowhere to be found at many, he said. The number of pictures a company makes public is a measure of how much pride its staff have in their work, according to Fujino.
Value in transparency
Canny fund managers and analysts have long looked to factors such as executive competence and corporate culture for clues to a company's growth prospects. Now that computerized trading lets the market price in numerical data such as earnings as soon as they emerge, investors are even more interested in nonfinancial information, pushing companies toward greater disclosure on a variety of fronts.
Information on a company's business model is particularly sought after. Video game maker Capcom gets particularly high marks in this regard: The company has visually mapped out a five-year plan for the release of major titles as well as annual plans for how its 2,000 development staff will be allocated, aiming for a steady flow of new offerings each year.
Capcom's earnings tend to fluctuate depending on when hit titles debut -- a perennial source of concern for investors. The business plans the company releases "open up a dialogue with management" about how efforts to stabilize earnings are going, said Hiroki Sampei, head of engagement at Fidelity International in Tokyo.
In their book "The End of Accounting," professors Baruch Lev of New York University and Feng Gu of the State University of New York at Buffalo argue that stock prices are now about 50% determined by financial information such as profit and assets, compared with 80-90% until the 1980s. This decline accelerated with the growth of the information technology sector: At tech giants such as Apple and Amazon.com of the U.S., heavy research and development spending tends to crimp profit, and the value of intellectual property trumps that of physical plant.
Investors are also increasingly rewarding companies for their efforts to improve governance and do environmental and social good, though no definitive link has yet been drawn between these behaviors and strong performance. Whether a matter of providing photos on a website or being a good corporate citizen, the search for the yardstick of a company's underlying value is never-ending.