In the fourth year of the Tokyo Stock Exchange's market reorganization, designed to prioritize quality over quantity, companies nearing deadlines to meet the new listing standards are making divergent choices.

With less than a year left in the final grace period for companies that fall short of the standards, some are preparing to shift to different market sections, while others are weighing going private.

The reform program is progressing steadily, with the next major step set to tighten listing maintenance criteria for certain companies on the startup-focused Growth section.

In April 2022, the TSE reorganized its four markets into three sections: Prime, Standard and Growth. In July this year, the exchange disclosed that 208 listed companies did not meet the criteria for continued listing on these markets, with 72 of them having to comply by March 2026.

AB Hotel, which operates budget hotels mainly in the Tokai region, announced in June that it was negotiating with major shareholders to sell part of their holdings to raise its free-float ratio, or the proportion of shares not held by top shareholders.

If the talks fail, the company will be delisted from the TSE's Standard section on Oct. 1, 2026, leaving it listed only on the Nagoya Stock Exchange.

Gurunavi, a Prime-listed restaurant information provider, said in May that if it cannot meet the free-float requirement, it will consider and implement measures to shift to the Standard section.

In June, PR Times, a press release distribution service provider, announced plans to apply for a listing on the NSE. At the time, the company met the criteria to remain on the TSE's Prime section. It said dual listing would mitigate delisting risk and "encourage shareholders to invest with confidence."

As part of its market restructuring, in March 2023 the TSE urged companies on the Prime and Standard sections to improve their capital efficiency. In particular, its targeting of companies trading below a price-to-book ratio of 1 — often seen as a sign that the market values a company more for its liquidation value than as a going concern — has helped push up Japanese stock prices.

Chizuru Morishita, a researcher at NLI Research Institute, gives the TSE's approach high marks, noting that "the TSE reforms are yielding positive results and prompting corporate executives to emphasize capital efficiency more explicitly."

Reforms to the Growth section are under way. In April, the TSE proposed stricter listing maintenance criteria for companies that have been on the Growth section for five years, with certain exceptions. Starting in 2030, these companies will be required to maintain a market capitalization of at least ¥10 billion, a threshold that could help make them more attractive to institutional investors. Currently, companies that have been on the Growth section for 10 years must maintain a market capitalization of 4 billion or more.

The TSE also plans to broaden the representation of Growth-section companies in the TOPIX stock index and to develop a new index that highlights the growth potential of startup companies.

Naotaka Ikeda, senior manager at the TSE's Listing Department, said the exchange has "focused on strengthening the effectiveness of initiatives to enhance corporate value and improve market assessments." He also emphasized the "need to continue building a track record over time."

In addition, the TSE has expanded support for companies with limited access to institutional investors. In July, the exchange hosted a seminar where executives from Nomura Asset Management explained how they make investment decisions to an audience of roughly 130 investor-relations professionals.

According to exchange officials, many participants gave positive feedback, including comments that the session helped them understand the asset manager's perspective better.

Commenting on Japanese companies' efforts to raise corporate value, Atsuko Furuta, president of Deloitte Tohmatsu Equity Advisory, said they "need to launch strategies that include business structure reforms." She predicted that "as more companies become capable of executing comprehensive reforms, those that cannot will be left behind, leading to greater polarization."