[Inside Chodong] 'Corporate Value-Up' Without a 'Stick'

The government unveiled the long-anticipated ‘Corporate Value-Up Program’ on the 26th, which had been announced earlier this year. As predicted by major media outlets, the program largely draws on Japan’s corporate value enhancement policies. The core idea is for companies to autonomously assess and analyze their current corporate value, establish, disclose, and implement plans to enhance corporate value, and communicate with shareholders accordingly. The government also hinted at providing incentives such as tax benefits and pledged to offer tax administration support. However, unlike Japan, which has even left open the possibility of delisting, Korea’s value-up program relies on corporate autonomy and incentives.

There are signs of the authorities’ deep deliberation, but at the same time, there is a mixed feeling that after a month of anticipation, the program lacks a substantial impact. The program does not differ significantly in its broad framework from Japan’s corporate value enhancement policy, nor does it present any compelling enforcement measures to boost corporate value. Following the announcement of the corporate value-up program, stocks with low price-to-book ratios (PBR) surged like theme stocks amid hopes of resolving the ‘Korea discount.’ This indicates high investor expectations, but it raises some doubts about whether this level of initiative will satisfy the discerning Korean investors.

In contrast, Japan’s Tokyo Stock Exchange has shown strong determination by giving companies with a PBR below 1 until 2026 to improve, even mentioning the possibility of delisting. Of course, PBR is not an absolute measure of corporate value, and since our authorities are only providing ‘guidelines,’ it is likely to exert pressure on companies. However, it is inevitable to question whether companies will comply willingly with a system lacking enforceability.

Both carrots and sticks are necessary. The Korea Corporate Governance Forum criticized on the 18th, stating, “Carrots are the best incentives for diligent students who are sincere in everything and serve their school community. On the other hand, problem students who are smart but sometimes violate school rules, including cheating, need both carrots and sticks.” This implies that not all companies will follow the state’s ‘good intentions.’

There is particular skepticism about whether companies that have been stingy with shareholder returns will respond solely to incentives. The forum also pointed out, “In the capital market, there are listed companies that frequently ignore the global standards emphasized by President Yoon Suk-yeol at the stock market opening ceremony on January 2. Among advanced countries, South Korea is the only country where treasury shares are not used for shareholder returns but are handled to suit the tastes of the largest shareholders.”

The tax support measures, which had raised high expectations, are disappointing due to a lack of specifics. The government only mentioned that it would prepare various tax support measures to enhance corporate value and induce shareholder returns of corporate profits, but without concrete promises, it is doubtful whether companies will actively participate. Companies that increase shareholder return measures, such as treasury stock cancellation or dividend expansion, will only step forward if it is clearly stated that their taxes will be reduced.

The government should not stop here but actively pursue reforms in inheritance tax as well. In the business community, there are many voices saying that to solve the ‘Korea discount’ problem fundamentally, the inheritance tax issue must be addressed. Because the higher the stock price, the higher the inheritance tax, corporate owners find themselves in the ironic situation where suppressing stock prices is more beneficial for inheritance.

Although some details are somewhat disappointing, it is positive that the government has shown interest in shareholder returns and expanded communication with companies through the ‘Value-Up Program.’ Domestic investors who entered the investment scene as ‘Donghak Ants’ during the COVID-19 era have now transformed into ‘Seohak Ants’ and are turning away from domestic stocks. To bring them back, a more proactive and stronger government will is necessary.

Lee Ji-eun, Deputy Head of Sejong Jungbu Reporting Bureau

This content was produced with the assistance of AI translation services.