The Capital Efficiency Signal: When ROIC Stops Making Sense

Diligent Market Intelligence counted 205 shareholder activist campaigns across Asia in 2025. Japan accounted for 56% of them, and 32% of the 100 campaigns recorded in the first quarter of 2026. Activists won 37 board seats at Japan-based companies last year — up from seven in 2024 and 23 in 2023. In Korea, sixty companies faced activist demands in Q1 2026 alone, matching the full-year total for 2025.

The standard interpretation of these numbers is that activism produces capital efficiency. Tokyo Stock Exchange's 2023 directive telling management to be "conscious of cost of capital and stock price" gave funds a framework, funds applied pressure, and boards responded by folding ROE and PBR targets into their medium-term plans. That story is true as far as it goes.

But it describes the second half of the sequence, not the first.

What a campaign actually costs

An activist campaign is slow, public, and expensive. A fund must build a position large enough to matter, absorb the illiquidity risk of holding it, hire counsel, and then win a vote against an incumbent board that controls the meeting agenda. Nobody underwrites that against a company whose capital is working. The campaign is a bet that the gap between what the assets could earn and what they do earn is wide enough, and durable enough, to pay for the effort of closing it.

Which means the campaign is a lagging indicator by construction. By the time a fund has filed and won a seat, the inefficiency it is pricing has usually been visible in the company's own filings for several years. The activist did not discover it. The activist decided it had finally become large enough to monetize.

What CEI measures instead

The Capital Efficiency Index (CEI) is built to read that same condition from the structure of the accounts rather than from the arrival of an outside party. It looks at ROIC, at asset turnover, and at the investment gap — the distance between what a business earns and what it puts back into the assets that earn it. When capital stops circulating, ROIC and turnover diverge before headline earnings do: the numerator can be held up by disposals, revaluations, or financial income for several reporting periods while the denominator quietly stops working.

That is the point at which ROIC "stops making sense" — when the ratio is still respectable but the mechanism producing it is no longer the operating business. A single-period ratio cannot show this. A structural reading across periods can.

Korea parallel

Korea's version of the same problem is arriving through a different door. Jung Ji-su, a researcher at the Korea Capital Market Institute, citing Korea Exchange estimates, said that with the reform package applied, the number of KOSDAQ companies subject to delisting during 2026 is projected at around 150 — roughly 100 more than the 50 originally expected.

The mechanics are visible in individual cases. In the first week of September, three KOSDAQ companies already inside delisting procedures reached for the same instrument — a third-party allotment rights issue paired with a change of controlling shareholder — and got three different outcomes: one paid in (KRW 25.0bn, new controlling shareholder at 39.16%), one withdrew its KRW 20.0bn issue two days after receiving a four-month remediation period, and one postponed payment again, to Sept. 30. The capital in question is not being raised to expand a business. It is being raised to hold a listing.

Academic frame

Michael Jensen's 1986 free cash flow hypothesis (American Economic Review) is the origin of the argument that capital which is not reinvested and not returned tends to be consumed. Brav, Jiang, Partnoy and Thomas, writing in the Journal of Finance in 2008, documented that hedge fund activism targets firms with identifiable payout and efficiency deficits — that is, targets are selected on conditions that predate the campaign.

Both literatures point the same way: the condition is observable before the intervention.

Conclusion

If you are waiting for an activist to tell you a company's capital has stopped working, you are reading the market's slowest instrument. The interesting question for a minority shareholder is not which companies attract campaigns. It is which companies show the same structural signature and are too small for anyone to bother campaigning against. Who reads those?

General observations from public filings and published data. Not investment advice.

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