Lee Yeon-woo is a financial journalist at The Korea Times. Her wide range of reporting includes policies, macroeconomics, stock market, companies and even crypto. She is passionate about connecting the dots in Korean finance and making it easier for foreign nationals to understand. Based on her previous experience as a national reporter, she also has a keen interest in social issues within the sector, including gender equality and ESG. Your tips and insights are always appreciated. You can send them to yanu@koreatimes.co.kr.
Tax incentives to be offered for firms voluntarily boosting corporate value
Financial Services Commission Chairman Kim Joo-hyun speaks during a policy seminar discussing the Corporate Value-up Program at the Korea Exchange's headquarters in Seoul, Monday. Yonhap
By Lee Yeon-woo
Much-awaited Corporate Value-up Program unveiled, but without mandatory compliance for companies
Tax incentives and other benefits will be offered to companies that voluntarily enhance their corporate value and eventually increase returns to investors as part of a government initiative to boost the valuations of businesses listed on the Korean stock market, financial regulators said, Monday.
The Financial Services Commission (FSC) and other related institutions unveiled this initiative as part of the government's Corporate Value-up Program, aiming to tackle the undervaluation of the domestic stock market, commonly known as the Korea discount.
The focal point is to encourage listed companies to focus on boosting their corporate value, and to provide various institutional incentives to facilitate this endeavor.
As a primary measure, the government plans to offer guidelines to prompt listed companies to disclose their strategies for enhancing corporate value. It expects the disclosures to help the companies in self-assessing their market value, setting medium- to long-term targets and devising concrete management skills accordingly. The FSC aims to finalize the details by the first half of this year, enabling companies to begin voluntary disclosures in the second half.
Tax incentives will be prepared to induce corporations to participate in the scheme. Starting in May, an annual Corporate Value-up Award will be bestowed upon exemplary corporations. Recipients of this award will receive benefits, including preferential treatment in tax incentives and inclusion in the upcoming Korea Value-up Index. The FSC is considering offering dividend income tax reductions and separate taxation for incentives, although specific plans have not been disclosed.
The Korea Value-up Index will consist of listed companies expected to consistently generate profits and foster corporate value through shareholder returns. This index will evaluate various key investment indicators, including the price-to-book ratio (PBR), price-to-earnings ratio (PER), return on equity (ROE), and dividend payout ratio.
The government plans to finish the development of the index in the third quarter, with the launch of associated exchange-traded funds (ETFs) expected in the fourth quarter.
Financial Services Commission Vice Chairman Kim So-young speaks during a media briefing about the Corporate Value-up Program at Government Complex Seoul, Monday. Yonhap
The government also announced plans to integrate efforts aimed at improving corporate value into the Stewardship Code. This integration will enable institutional investors to consider these initiatives when evaluating investments.
Furthermore, to ensure the ongoing pursuit of value-up initiatives as medium- to long-term goals, a specialized department will be established within the Korea Exchange. An advisory panel will be formed to facilitate communication. Support will also be extended for joint investor relations events, particularly centered around promising enterprises.
"It is preferable for the government to demonstrate its commitment by ensuring that the policy is not limited to the short term," SK Securities analyst Kang Jae-hyun said.
However, some market observers express doubts about the effectiveness of the system, as it relies heavily on companies voluntarily taking action to enhance their corporate value. Moreover, the announcement lacked specific details regarding the tax incentives that will be offered to exemplary corporations.
"Company disclosures are set to commence in the second half of the year, with the index development slated for the third quarter. Additionally, since the disclosure incentives won't kick off until next year, we may witness a selling spree by short-term investors solely focused on price," Kang said. "The absence of specific tax incentives and details on amendments to the Commercial Act means that the anticipated market incentives and deterrents are currently lacking."
In response to the concerns, Finance Minister Choi Sang-mok said that tax support measures will be announced as soon as they are prepared. The FSC also said that encouraging rather than mandating corporate participation is "realistic and desirable," as regulations could lead to the creation of meaningless and unrealistic plans.