One in three companies listed on the first section of the Tokyo Stock Exchange reported record profits in the business year that ended March 31, thanks to strong demand from China and higher raw materials prices.

Surprisingly, many rewarded their shareholders by increasing dividends or buying back their own stock. Japanese companies usually shun their shareholders and save profits for investment or retain them as internal reserves.

The drastic change is a response to increasing activism by discontented shareholders and a growing awareness among companies of their vulnerability to hostile takeovers.

Two of the key figures responsible for this development have been Takafumi Horie, president of Internet portal Livedoor Co., and Yoshiaki Murakami, leader of the Murakami Fund. Both were involved in Livedoor’s high-profile takeover bid for Nippon Broadcasting System Inc.

The daring takeover bid, which made use of a loophole in the Securities and Exchange Law, stirred fierce resentment among tradition-bound companies, which found that their abandonment of the habit of using cross-held shares had suddenly left them open to attack from outsiders, including foreigners.

Horie and Murakami asserted that a company should not go public if it does not want to become a takeover target. They also reminded the companies that it is the shareholders who select the board of directors, not the other way around.

The rare takeover bid also stirred up debate on who companies really belong to, which prompted shareholders to become more assertive, according to a senior official at a securities company.

According to Shinko Research Institute Co., both total dividends and the number of companies paying dividends will likely hit record highs.

Of the 2,268 companies listed on the TSE as of May 23, 1,080 are expected to increase or resume dividend payments for the business year that ended in March, up from 812 the previous year, according to the think tank affiliated with Shinko Securities Co.

It said the dividends they pay will amount to 3.66 trillion yen, up from 2.91 trillion yen the previous year.

Dividends, however, are still low by international standards. The payout ratio in Japan is only 20 percent, compared with 30 percent to 40 percent in the U.S. and Europe.

For instance, Microsoft Corp. of the United States announced plans last year to pay shareholders a special dividend worth the equivalent of about 3 trillion yen.

“Funds that are not necessary for management should be distributed to shareholders,” said Kenzo Kuroda, representative of U.S.-based Steel Partners Japan.

With the unwinding of cross-shareholdings leaving companies more vulnerable to hostile takeovers, firms have found a pressing need to secure shareholder loyalty.

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