Advertorial feature
[ BAILLIE GIFFORD ]
12 / 13
Karen See, investment manager in Baillie Gifford’s Japanese Equities
Team, says the roots of Japan’s poor dividend-paying culture can be
traced back to World War Two – but things are finally changing
Japan’s return
to dividends
After the war, Japan united to
rebuild the country and the economy.
A new social contract was drawn up
where workers agreed to work hard
without demanding high wages in
return for job security. This is when
lifetime employment and seniority
pay, the two hallmarks of the
Japanese employment system, were
established. Even today, most senior
managers rise through the ranks of
the company. Loyalty is rewarded
with a seat on the board. As a result,
Management is waking up
to the fact that increasing
productivity – rather than
upholding a jobs-for-life
culture – is crucial if Japan’s
economy, and society
at large, is to continue
functioning
The value of your investment and
any income from it can fall as well as
rise and as a result your capital may
be at risk.
in favour of re-investing capital in
industrial production facilities, and
bank lending overtook the securities
market as the main source of
corporate funding.
ver wondered why Japanese The average debt-to-asset ratio for
companies have paid such
companies by the start of the 1950s
meagre dividends?
was over 60 per cent, compared
Japan has a dividend pay-
to less than 30 per cent in other
out ratio around half that of other
countries. Companies struggling
major markets. Many investors regard to pay off debts undertook debt-to-
this as evidence that its companies
equity swaps in order to survive.
lack a dividend culture. However,
As a result, the percentage
changes already implemented are
of listed companies owned
having a positive impact on returns.
by financial institutions
And there is more to come.
rose sharply. It was not only
We can trace the corporate Japan
banks that owned more
of today back to the start of World
stocks – companies came
War Two. The military government
together to form alliances to
wanted to channel resources into
defend themselves against
supporting the Japanese war effort.
takeovers and outside
Dividend payments were suspended
influence.
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