Increasing pressure on Japan’s technology firms to return more cash to shareholders may spur the next phase of corporate reforms that helped drive the nation’s stock market to record highs.

Keyence management faced questioning from analysts at its recent results briefing on why it wasn’t distributing more from its ¥2.7 trillion ($18 billion) pile of assets. Earnings from the factory-automation company also failed to meet high expectations, and its shares dropped the next day by the most in four months.

Growth companies that had been getting a free pass amid the Tokyo Stock Exchange’s yearslong campaign to improve valuations and capital efficiency are now facing closer scrutiny. Investors and analysts cite gaming giant Nintendo and Shin-Etsu Chemical, the world’s biggest maker of chip wafers, among others with large financial hoards.

"There are many other Japanese companies that are sitting on cash despite being highly profitable and having growth potential,” said Zhiyuan Tao, a portfolio manager at AllianceBernstein Japan. "This has been overlooked until recently, but the market has become more critical.”

Vocal investors have been playing a large role in recent success stories in Japan’s stock market, such as Warren Buffett spurring interest in the nation’s trading houses. Activists have helped drive a surge in dividends and buybacks, particularly targeting companies with lower growth and undervalued stocks.

Meanwhile, the market has been willing to turn a relatively blind eye to firms like Keyence, whose operating profit margin of 51.9% last fiscal year ranked highest of any manufacturer on the 225-issue Nikkei Stock Average. The company’s cash deposits and securities have more than tripled in the last 10 years, while its market value surged past the $100 billion mark.

The company has built a strong reputation with high profitability thanks to outsourced production, and its employee salaries rank among the highest in Japan manufacturing. Still, its shares have declined 14% this year despite the broader market’s climb to new all-time highs, and there are signs investors are growing impatient.

"There were questions by analysts about shareholder returns, which hadn’t been asked much before,” said Tetsuro Ii, chief executive of Commons Asset Management, reflecting on the Keyence briefing in late July.

Disclosures show major long-only funds reducing stakes in the company over the past few months amid demand uncertainties and "inefficiency in Keyence’s use of abundant cash,” Sho Fukuhara, an analyst at Jefferies, wrote in a July 29 note. Management argues it needs cash to develop new products, he added.

Keyence isn’t alone. Other major growth firms with cash and short-term securities topping $10 billion include Nintendo and Shin-Etsu Chemical. Efforts to contact Keyence and Nintendo for this story were unsuccessful. A spokesperson for Shin-Etsu Chemical highlighted the firm’s buyback announced in April and previous management comments about having no intention of increasing cash levels further.

While the bourse’s reform directives especially targeted companies whose shares are trading at less than book value, the larger cash piles are found at firms with high valuations. According to compiled data, among 262 cash-rich non-financial Topix companies, 135 trade at price-to-book ratios of more than 2 times.

Such companies previously won investors simply with strong sales and profits, but the playing field is leveling out, according to AllianceBernstein’s Tao. Sweeping corporate structural reforms, as well as inflation, have made it possible now for "even ordinary companies to achieve decent growth,” he said.

The impact of Japan Inc.’s newfound focus on governance has been more pronounced for undervalued, low-growth companies. The MSCI Japan Value Index has surged 128% over the past five years, outpacing the 54% rise in the MSCI Japan Growth Index.

Now all eyes are on big tech.

"If companies that are capable of doing more but are not doing so become more shareholder-friendly, it will be very beneficial for the Japan market,” said Daisuke Nomoto, head of Japanese equity at Columbia Threadneedle Investments.