By Park Hyong-ki
Why does Korea get frantic every time a foreign-invested company reports that it will send its dividends to its parent company abroad?
The media tends to report meticulously about it. They often indirectly cite some concerns about hard-earned money made from Korean consumers leaving this country.
This is in stark contrast to how foreign media or regulators approach the issue ― they rarely or don’t cover or deal with it.
It is not like an average regular person encounters a daily business story abroad about Samsung Electronics in the United States transferring dividends to its Korean headquarters after a good year of selling smartphones or chips in the world’s largest market.
Koreans would most likely see that as an act of patriotism, but would probably look suspiciously or negatively at a foreign company that sends its dividends from its retained earnings to its home.
In an accounting sense, there is nothing wrong with sending dividends home, piling up cash for a rainy day or reinvesting that cash from retained earnings if a corporate board considers any of these acceptable.
Also, an average retail investor would not complain when a listed company she invested in decides to pay dividends.
Investors should rightly receive dividends from companies that fared well. And as a responsible shareholder, they should scrutinize and demand answers from companies that failed to meet expectations.
That is the basic function of a capitalist system.
Regulators should intervene when they detect disorder in this system to prevent irrational exuberance partly caused by “noisy phishing” as economists George Akerlof and Robert Shiller call it.
In a small, open economy such as Korea, the country could justifiably get worried over a massive exodus of cash because it could increase unwanted volatility.
Financial regulators here have said that how much foreign companies pay dividends overseas is their business.
As long as foreign companies follow global management standards and do not break any rules, there is nothing wrong with dividend payments, the Financial Supervisory Service said at the FSS Speaks forum last April.
Yet again, foreign companies here such as AIG and MetLife are being highlighted for paying handsome dividends to their parent companies overseas.
AIG Korea paid 26.9 billion won to its parent AIG Singapore last year for the first time in 63 years since it began its operations here.
MetLife Korea also paid about 80 percent of its net profit as dividends to its parent company last year.
Both had said that the payments were within their manageable levels.
In a recent interview with The Korea Times, AIG Korea CEO Steven Barnett said, "Based on our due diligence, it was at a level that the company was comfortable with and would not damage Korea's capital position.”
MetLife Korea noted that it has been paying dividends over the past five years.
These payments by foreign companies here may be considered large when compared to domestic insurance companies, which have paid less as they try to hoard as much cash as possible ahead of a new accounting system called IFRS 17.
Domestic insurers most likely need to boost their reserves to prepare for the new system. That is why they paid less than their foreign peers.
Of course, when a company pays too much in dividends, it should draw curiosity. High dividend payments may mean that a company does not have a clear investment future. It has a lot of cash but doesn’t know what to do with it, so it pays big dividends to make its shareholders happy.
In the case of Apple, it did not pay dividends to its shareholders when Steve Jobs was the chief executive. He instead used that money to reinvest in creating the next big things such as iMac, iPod, MacBook, iPhone and iPad. And its shareholders and board saw that as acceptable because the money spent on innovation boosted Apple’s stock price.