VIP Asset Management: "The Lower the Stock Price, the More Major Shareholders Gain—This Structure Must Change"

Presentation at National Assembly Discussion on Preventing Stock Price Suppression Act

Aligning the Interests of Major and Minority Shareholders

"No More Reason for Major Shareholders to Suppress Stock Prices"

Yonhap News

"The lower the stock price, the less tax burden major shareholders bear, and every time there are rumors about the owner's health, the stock price surges dramatically. This tragedy must end."

On July 21, Min-Guk Kim, CEO of VIP Asset Management, emphasized this point during the policy discussion session on "Legislative Tasks for Preventing Stock Price Suppression to Resolve the Korea Discount," which was co-hosted by Assembly members Lee Soyoung and Lee Hoonki of the Democratic Party at the National Assembly.

VIP Asset Management evaluated that this legislation is a realistic solution, as it removes the "economic incentive to keep stock prices artificially low," which is the structural reason behind the "Korea Discount." The company called for swift enactment, explaining that "this bill is not a regulation that forces stock prices upward, but a system that corrects the perverse incentive where low stock prices result in tax benefits for major shareholders."

Even as KOSPI Rises, 'Korea Discount' Remains

Over the past year, the index’s rise has been driven essentially by the semiconductor sector. Excluding the five main semiconductor companies, KOSPI stood at 2,787 points as of the previous day. There are 586 companies (73% of KOSPI-listed firms) whose price-to-book ratio (PBR) is below 1, meaning that their market capitalization does not even reach their net assets—a number that has actually increased compared to a year ago. CEO Kim diagnosed, "Behind the optical illusion created by the rising index, the undervaluation has deepened."

He cited the favorable tax structure for major shareholders as the cause. Inheritance and gift taxes are calculated based on the average stock price during the four months surrounding the reference date—two months before and two months after. Therefore, the lower the stock price, the less tax the major shareholder pays. "It is time to end the tragedy where news of a major shareholder's declining health or death becomes a catalyst for rising stock prices," he said.

'The Fact That It Is 'Legal' Is More of a Problem... The Incentive Must Be Changed, Not the Conduct'

CEO Kim pointed out that "without resorting to illegal acts like price manipulation, stock prices can easily be kept low simply through management decisions." Common methods include reducing dividends, retaining more cash within the company, acquiring friendly shares through treasury stock, pursuing dual listings, managing earnings conservatively before and after succession, and passive IR (investor relations). As these are management decisions relating to dividend policy, cash management, or corporate governance, it is difficult to penalize such behavior. However, when these choices accumulate, the company’s true value is not communicated, shareholder returns diminish, and the stock price remains suppressed for long periods. He stressed, "Most of these actions are not subject to penalties under the Capital Markets Act; they fall within the domain of managerial judgment."

CEO Kim likened conduct regulation to "a game of Whac-A-Mole." He explained that the most efficient way is to eliminate the benefit that comes from deliberately maintaining a low stock price. Under the proposed bill, if the major shareholder inherits or receives listed shares as a gift when the stock price is less than 80% of its statutory net asset value, the valuation method applied to unlisted stocks would be used as well, and 80% of the net asset value would become the floor for tax assessment. Therefore, no matter how much the price is suppressed, the tax will not decrease below that point—removing the very reason to keep prices low. This applies only at the time of inheritance or gifting by the major shareholder, and does not affect normal trading or ordinary investors.

This valuation approach has already long been applied to unlisted stocks. CEO Kim explained, "For nearly a decade, unlisted shares have been subject to an 80% of net asset value floor. Applying this to listed stocks would reduce confusion while ensuring fair value assessment."

When the Bill Passes, Major Shareholders’ and Minority Shareholders’ Interests Will Align

CEO Kim predicted that the bill would change the calculus for major shareholders. Even if the stock price is suppressed, the taxes will not decrease; meanwhile, hoarding cash and idle assets would only increase the tax burden. "Companies will have more incentive to use accumulated cash for new investments and shareholder returns such as dividends or share buybacks. From an investor’s standpoint, low PBR companies will no longer remain 'perpetually cheap' but instead become candidates for revaluation. Such changes, when accumulated, could also lead to long-term capital flowing into the capital market," he explained.

The bill also includes abolishing the 20% tax premium for major shareholders and allowing taxes to be paid in-kind with listed shares. These measures apply uniformly to all major shareholders, regardless of undervaluation. While closing the loophole that allowed tax reduction via undervaluation, the legislation eases the succession burden for companies that have legitimately increased their corporate value. As heirs no longer need to sell large volumes of stock to raise funds for taxes, it helps mitigate stock price shocks due to overhang.

CEO Kim interpreted the goal of the law as "aligning the interests of major and minority shareholders." Suppressing the stock price will bring losses to the major shareholder, while increasing corporate value will generate benefits for both major and minority shareholders. "Major and minority shareholders are like people in the same boat, but current institutions make them row in opposite directions. The Preventing Stock Price Suppression Act will end this state of divided interests and encourage everyone to pursue the common goal of enhancing corporate value," he emphasized.

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