[Second-Half Growth Strategy] Government Moves to Block Stock Price Suppression... List of Low-PBR Companies to Be Disclosed Starting in November

Capital Market Initiatives in the Second-Half Economic Growth Strategy

The government is set to implement institutional reforms in the second half of the year to curb intentional stock price suppression by listed companies. Starting in November, it will also release a list of companies with low price-to-book ratios (PBR).

On July 14, the government included capital market reform measures in its ‘Second-Half Economic Growth Strategy,’ which was released jointly by relevant ministries earlier in the day. Following three amendments to the Commercial Act over the past year that drove the value-up initiative for KOSPI-listed firms, the government is now embarking on a "Second Act of Capital Market Reform" focused on enhancing corporate value and boosting dynamism in KOSDAQ-listed companies.

First, the government will review changes to the method of valuing listed stocks to prevent stock price suppression. The core objective is to eliminate incentives for major shareholders to intentionally keep stock prices low to reduce inheritance and gift tax burdens. Under the current system—where the assessment is based on the average closing price over the two months before and after a given event—lower stock prices mean lower tax burdens, creating incentives for major shareholders to be less active in raising corporate value. There has been growing criticism of this structure. President Lee Jaemyung has regularly cited stock price suppression as a key factor contributing to the Korea discount.

Under discussion as a new valuation method is a proposal based on the 'Stock Price Suppression Prevention Act' (an amendment to the inheritance and gift tax law) proposed last year by Democratic Party lawmaker Lee Soyoung. This would tax inheritance and gifts of shares in listed companies with a PBR below 0.8 using the valuation method for unlisted companies (asset and income value assessment) rather than market prices. Representative Lee previously announced plans to include this in the government's tax reform package and to promote its review in the National Assembly’s Strategy and Finance Committee.

The government will also strengthen policies to enhance corporate value. The timing of the public release of the list of low-PBR companies has been set for November. This is a ‘naming and shaming’ approach, disclosing companies with insufficient efforts to improve corporate value so as to prompt voluntary reforms by the market. In addition, the government will encourage institutional investors such as the National Pension Service to monitor companies’ dividend policies and other corporate value enhancement efforts, linking these reviews to shareholder activities.

According to Korea Exchange, as of last month, 503 out of 947 companies (53.11%) listed on the Korea Exchange's main board had a PBR of 0.8 or below. With more than half of all companies in a low-PBR state, the government plans to strengthen market oversight and encourage companies to voluntarily improve corporate value by releasing the list.

The Second-Half Economic Growth Strategy also includes measures to increase the competitiveness of the KOSDAQ market. Since the inauguration of the Lee Jaemyung administration, the KOSPI has surged while the KOSDAQ has shown relatively sluggish performance. The government plans to introduce detailed rules for a promotion and relegation system for KOSDAQ by the end of the year, managing strong and weak companies differently by market segment, with implementation targeted for early 2027. It will also enhance stage-specific financial support for venture companies and expand the scope of KOSDAQ’s customized technology-special listing segments from seven to ten areas. In addition, the requirements for delisting, such as for penny stocks, have already been tightened starting this half of the year.

At the same time, the government plans to improve the system to promote productive finance. It will introduce a new ‘productive finance ISA (Individual Savings Account)’ featuring enhanced tax benefits, and allow investments in ETFs by foreign investors through integrated accounts. The settlement cycle will also be shortened (T+1), enabling investors to receive proceeds the day after selling stocks, with a detailed roadmap to be established by October.

Efforts to secure Korea’s inclusion in the Morgan Stanley Capital International (MSCI) developed markets index will continue. Starting this month, a global key investor council will be formed to strengthen communication with major overseas investors and address issues relating to improvements in the investment environment. The MSCI developed markets index serves as a benchmark for global institutional investors, pension funds, and passive funds in country-by-country asset allocation. Inclusion would be expected to attract increased global capital inflows and raise the status of the Korean stock market. However, in last month’s annual MSCI market classification, Korea failed to be placed on the watchlist, which is the final stage prior to inclusion.

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