In a shift towards a more rigorous stance, South Korea’s market watchdog contemplates imposing penalties on companies failing to enhance shareholder returns in the long term. The warning comes after the recently announced “Corporate Value-up Programme” aimed at boosting shareholder returns received a lukewarm response from the market.
Lee Bok-hyun, the governor of the Financial Supervisory Service, disclosed that authorities are in discussions regarding measures to address firms not meeting specified criteria for shareholder returns. While not initially part of the corporate reform package, these measures are expected to be integrated once details are finalized.
Potential penalties include the removal of non-compliant firms from the stock market, highlighting the authorities’ commitment to ensuring progress and preventing prolonged stagnation among listed companies.
The “Corporate Value-up Programme,” unveiled on Monday, aims to diminish the “Korea discount” affecting stock prices. This discount reflects South Korean companies’ lower valuations compared to global peers, influenced by factors like low dividend payouts and the dominance of opaque conglomerates known as chaebols.
Analysts express skepticism about the efficacy of the reform package, citing a lack of details and the absence of penalties or tax benefits to incentivize companies. The market reacts positively to the possibility of compulsory follow-up measures, with hopes for a more comprehensive approach to corporate governance.
The benchmark KOSPI index responds with a more than 1% rise on Wednesday, breaking a two-day decline. Shares of undervalued sectors, including automakers and banks, lead the gains amid renewed optimism.
