Chasing Nidec: Why We Should Pay Attention Now

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As of the end of March 2025, Nidec Corporation posted consolidated net sales of ¥2.6 trillion JPY ($16.8 billion USD), employed more than 100,000 people, and generated roughly 90% of its sales overseas. It is one of Japan's flagship electrical equipment manufacturers. Founded by Shigenobu Nagamori, who now serves as chairman of the board, the company grew into a global enterprise. Under his strong leadership, it acquired firms in Japan and abroad, expanding its operations worldwide.

First in a Four-part Series

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On September 3, 2025, Nidec announced that it had established an independent third-party committee to investigate suspected improper accounting practices at one of its overseas subsidiaries. Three weeks later, on September 26, the company's audit firm issued a disclaimer of opinion.

Market Alarms

On October 28, the Tokyo Stock Exchange designated Nidec's shares as a "Security on Special Alert." The following day, Moody's Japan downgraded Nidec's credit rating from A3 to Baa1. Subsequently, on November 14, Nidec submitted its semiannual report. However, the investigation by the third-party committee was still ongoing, and the audit firm issued an interim review report with a disclaimer of conclusion regarding the interim consolidated financial statements.

Nidec has 342 consolidated subsidiaries and four equity-method affiliates. Additionally, it has nearly 200,000 shareholders, comprising numerous institutional and individual investors from both domestic and international markets.

The Japan Exchange Group has also taken notice of the suspected improper accounting. Cases in which a company is designated a "Security on Special Alert" before the release of a third-party committee report are exceedingly rare. A company designated as such, in principle, will be delisted if its internal control system is deemed inadequate during a review one year later.

Following these disclosures and news reports, Nidec's stock price fell sharply. Since the announcement of the third-party committee on September 3, the stock has dropped as much as ¥1,237, or around 30%.

What exactly is happening at Nidec, and how should investors respond? This series will explore the Nidec issue across multiple installments.

In this article, we begin by explaining why Nidec deserves attention at this moment.

A Problem Affecting Trust in Japan's Securities Market

Nidec boasts the world's number one market share in several products, including motors for hard disk drives. It is truly one of Japan's leading companies. However, following the disclosure of suspected improper accounting practices, Nidec's share price plummeted, with the auditor issuing a 'disclaimer of opinion' and the stock being designated as 'Security on Special Alert'. The Nidec accounting scandal has escalated into a situation that raises serious concerns about the credibility of its corporate governance.

According to Nidec, the suspected improper accounting may involve members of Nidec management at its headquarters and its group companies. If true, this would indicate a serious governance failure.

*CEO Mitsuya Kishida (center) apologizes at the start of the press conference on the accounting scandal. November 14, Chuo Ward, Tokyo.*

Given Nidec's status as a premier Japanese corporation with 90% of its sales overseas and a large base of foreign institutional investors, governance defects of this magnitude pose a significant threat to trust in Japan's securities markets. Furthermore, it may negatively affect the overall valuation of Japanese equities.

Impacts on Stocks

On November 4, Nidec was removed from the Tokyo Stock Price Index (TOPIX), and on November 5, it was also removed from the Nikkei Stock Average. When a stock is removed from a major index, index-tracking funds are required to sell it, creating downward pressure on the share price.

Indeed, on October 28, the day after reports emerged that Nidec would be removed from the TOPIX and Nikkei, the stock plummeted, falling ¥500 (19%) from the previous day, reaching the lower limit for the day.

This illustrates that a company's corporate governance structure has a direct impact on stock prices. Executives of listed companies must therefore prioritize the establishment and maintenance of robust governance systems. Going forward, investors are more likely to actively avoid companies that neglect governance. Where governance failures lead to falling stock prices, legal action may also become increasingly common.

A Signal of Structural and Cultural Weakness

Nidec's improper accounting issue is not a one-off incident. Rather, it is an important signal requiring scrutiny of the company's structural soundness, the integrity of its leadership, and the strength of its compliance culture. For overseas investors, this should serve as an opportunity to reassess governance risks in the Japanese market and revisit their investment strategies accordingly.

Watch for the next part of the series.