[Diagnosis of Yoon Administration's Capital Market Policy] 50% of Securities Firms Say "Lack of Value-Up"... Opinions Divided on Commercial Act Amendment

Survey Conducted Among 10 Major Domestic Securities Firms

Among the top 10 domestic securities firms, 5 evaluated the corporate value-up (corporate value enhancement plan) program, which has been in full operation since the end of May, as 'insufficient.' Securities firms unanimously agreed that since the success or failure of the policy depends on the voluntary will and level of participation of listed companies, institutional measures to encourage corporate participation need to be supplemented. They also emphasized that, as it is expected to take more than three years for the value-up policy to settle in the market, it should be operated with a long-term perspective like Japan, the originator of the value-up program. Opinions on the amendment of the Commercial Act were evenly split between support and opposition, while there was a unanimous voice regarding the abolition of the financial investment income tax (FIIT) and the resumption of short selling. Regarding the real estate project financing (PF) crisis triggered by the Legoland incident, they took a breather but judged that the crisis has not been completely overcome.

Mixed evaluations on value-up: half say well done, half say not; 60% believe it will take over 3 years to see effects

According to a survey conducted by Asia Economy on the 27th targeting 10 major domestic securities firms about the 'Yoon government’s capital market policy,' 50% of the responding securities firms answered that the value-up program is 'doing well.' Half of the responding securities firms evaluated it as 'insufficient.' Securities firms, as players in the domestic capital market, positively recognized the necessity of the value-up program introduced to raise corporate value and resolve the undervaluation phenomenon of the Korean stock market (Korea Discount), but they believed that additional supplementary measures are needed for the policy to be effective.

Regarding the reasons for judging the value-up program as insufficient, the most common response was the ineffective tax benefits (40%), followed by foreign investors and domestic institutions’ neglect (20%), sluggish progress in amending the Commercial Act (20%), and lack of punitive measures such as delisting (Japan) (20%).

Specifically, when asked what additional policies should be supplemented for the value-up policy to be effective, 6 out of 10 answered 'tax benefits.' Since the implementation of value-up depends on the voluntary will of companies, they saw the need for incentives to encourage corporate participation. Securities firm A, which participated in the survey, said, "The comprehensive taxation threshold for dividend income is 20 million KRW, the same as for real estate gains, but I hope the threshold for dividend income will be raised." Another securities firm suggested, "The dividend separate taxation item must be included."

The tax reform bill announced by the government at the end of July includes the abolition of FIIT and tax benefits such as corporate tax, dividend income tax, and inheritance tax for companies that disclose value-up plans and expand shareholder returns. Currently, financial authorities are making every effort to ensure the bill passes through the National Assembly as originally announced.

There was also an opinion that active participation by companies (major shareholders) is more necessary than policies. Three months after the value-up program was fully launched, only 23 value-up disclosures have been made. Among them, 13 disclosures either announced plans to enhance corporate value or reported the implementation of such plans, but only 8 disclosures actually contained value-up plans. The recent meeting held by financial authorities with CEOs to urge participation in value-up was for this reason. At the meeting, Kim Byung-hwan, Chairman of the Financial Services Commission, emphasized, "The key success factor for corporate value-up is the voluntary and active participation of market participants."

Two respondents also said that amending the Commercial Act is necessary, and some answered that rather than additional policies, efforts by various participants to foster a long-term investment culture are needed. Six out of 10 securities firms believed that the announcement of the Korea Value-Up Index in September and the launch of linked exchange-traded funds (ETFs) in the fourth quarter would help resolve the Korea Discount. On the other hand, two firms responded that "there will be no effect other than short-term supply and demand impacts" and "it probably won't have a big effect."

Sixty percent of survey participants predicted that it would take more than three years for the value-up program to bring about meaningful changes in the market, such as expanded shareholder returns and stock price increases. In particular, 40% responded that it would take more than four years to see concrete results of value-up, and 20% said more than three years. Just as Japan’s value-up program was conducted from a mid- to long-term perspective over 10 years, South Korea is also expected to need more than three years for the value-up program to settle in the domestic capital market. Additionally, 30% answered it would take more than one year, and 10% said it would take more than two years.

Half support amendment of Commercial Act; overwhelming support for FIIT abolition and short selling resumption

When asked about the necessity of amending the Commercial Act, opinions were evenly split at 50% each for support and opposition. In June, as part of the value-up program, the government announced plans to expand the duty of loyalty of directors, currently defined only for the 'company' under the Commercial Act, to 'general shareholders.' However, due to fierce controversy, the government has currently taken a step back. Meanwhile, the Democratic Party of Korea is actively pushing for the amendment of the Commercial Act.

In the securities industry, it was pointed out that along with expanding the duty of loyalty of directors, amendments related to mandatory treasury stock cancellation and tax issues such as inheritance and gift taxes should be made together. One securities firm said, "I think the shareholder primacy clause should be amended, but even if the Commercial Act is amended, if it is practically ignored, the impact will not be significant."

Regarding FIIT, there was overwhelming support for its abolition, suspension, or easing, with no opposing opinions. This aligns with the voices of individual investors who have consistently opposed FIIT, arguing that its introduction could shrink domestic investment and cause capital flight by major investors, negatively affecting the domestic stock market.

Opinions on short selling were different. Unlike individual investors who oppose the resumption of short selling, all 10 securities firms answered that short selling is necessary. Securities firms have consistently expressed the position that illegal short selling should be managed through sanctions, but short selling is necessary to prevent market overheating and activate stock trading.

Regarding the real estate PF crisis that triggered a liquidity crisis after the Legoland incident at the end of 2022, half diagnosed it as similar and half as less severe. There was no opinion that the PF crisis situation has worsened, so the worst situation was avoided. However, considering that half said it is similar to that time, the PF market as perceived by securities firms is still not good. Especially for small and medium-sized securities firms, the slow recovery of the real estate PF market has led to business contraction and profit decline, with first-half performance nearly halved. The aftershocks of real estate PF are ongoing.

Meanwhile, this survey was conducted targeting major domestic securities firms including Mirae Asset, NH Investment & Securities, Korea Investment & Securities, Meritz, Samsung Securities, Daishin Securities, IBK Securities, KB Securities, Eugene Investment & Securities, and IM Securities.

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