South Korea Launches Corporate Value-up Program to Boost Stock Market

South Korea Launches Corporate Value-up Program to Boost Stock Market

By
Ji-hyun Park
2 min read

South Korea Introduces "Corporate Value-up Program" to Enhance Shareholder Returns and Corporate Governance

The South Korean Financial Services Commission has launched the "Corporate Value-up Program" to address the undervaluation of local firms, known as the "Korea Discount," by focusing on improving shareholder returns and corporate governance. The initiative offers tax benefits and targets the complex structures of chaebols in the $1.8 trillion stock market. Despite the guidelines, the Kospi Index experienced a minor dip of 0.1% following the announcement. This initiative comes ahead of the opposition party's victory in the parliamentary elections, emphasizing the government's efforts to incentivize firms to prioritize increasing shareholder value.

Key Takeaways

  • The "Corporate Value-up Program" aims to improve shareholder returns and governance, addressing the undervaluation of local firms known as the "Korea Discount."
  • The program targets chaebols' complex structures in the $1.8 trillion stock market, offering tax benefits to incentivize value enhancement.
  • The market reaction was mixed, with the Kospi Index dipping 0.1% despite broader Asian gains.
  • Emphasis is placed on the role of board directors in implementing value-enhancement plans, inspired by Japan's corporate reforms.

Analysis

The introduction of South Korea's "Corporate Value-up Program" holds the potential for significant impacts on the economy and businesses. The primary goal is to address the "Korea Discount" by improving shareholder returns and corporate governance, focusing specifically on chaebols' complex structures. This could lead to increased transparency and accountability within these conglomerates, potentially inviting more foreign investment.

While this initiative may bring about short-term market fluctuations and volatility, the incentives, including tax benefits and a focus on the role of board directors, reflect Japan's corporate reforms. This move has the potential to inspire similar actions in other Asian countries, contributing to greater regional economic integration.

Entities affected by this program include chaebols, institutional investors, individual shareholders, board directors, financial intermediaries, and regulators. The recent victory of the opposition party in the parliamentary elections could introduce competing reform proposals, potentially impacting the program's implementation.

Did You Know?

  • Korea Discount: This term describes the undervaluation of South Korean companies compared to their global counterparts, often attributed to complex ownership structures, governance issues, and geopolitical risks. The "Corporate Value-up Program" aims to encourage companies to enhance corporate governance and shareholder returns to mitigate this issue.

  • Chaebols: These are large, often family-owned conglomerates that dominate the South Korean economy, such as Samsung, Hyundai, and LG. The "Corporate Value-up Program" specifically targets these complex structures to bolster the country's stock market valuations.

  • Tax Benefits: As part of the "Corporate Value-up Program," the South Korean government offers tax benefits to incentivize companies to prioritize increasing shareholder value. These benefits are designed to encourage firms to implement value-enhancement plans, ultimately improving corporate governance and reducing the Korea Discount.

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