Korean firms urged to enhance shareholder value

Despite increasing efforts by Korean companies to improve shareholder returns, any resulting outcomes have yet to reach the stock market. This stands in contrast to the Japanese bourse, where corporate initiatives to boost shareholder value have significantly contributed to its recent outstanding rally.

Japan’s main stock index, the Nikkei 225, recently soared to its highest level in nearly 33 years, surging around seven percent this month alone. Korea’s benchmark KOSPI modestly increased by around one percent during the same period.

Market experts cite the enhancement of shareholder value by Japanese corporations as one of the reasons for this recovery. Companies such as Mitsubishi Corporation, Fujitsu and Dai Nippon Printing have announced plans to purchase treasury stocks, while Mitsubishi Heavy Industries has begun drastically increasing dividends.

The total value of share buybacks by Japanese companies in the 2022 fiscal year was estimated to have reached 9 trillion yen, the largest in 16 years.

Shareholder return policies have also emerged as a significant issue in this year’s domestic stock market. Since the beginning of the year, domestic listed companies have announced plans to increase dividends and repurchase their shares, spurred by activist funds’ emphasis on enhancing shareholder value.

However, Korea’s shareholder return policies were not significant enough to influence stock prices.

As of April, the number of listed companies that included shareholder proposals in their annual general meeting agenda increased by 57.1 percent compared to the previous year. However, only 11.4 percent of these proposals were approved. Particularly, agendas related to increasing dividends, and buying back or retiring stocks had an approval rate of around zero percent.

The Financial Services Commission’s (FSC) attempts to improve treasury stock systems are also facing strong opposition. In response to suggestions by the FSC advisory body to make stock retirement obligatory, the Federation of Korean Industries (FKI) issued a statement, saying that it negatively impacts “company management and shareholder profits.”

Still, calls for enhancing shareholder value will only continue to grow.

Park Se-yeon, a senior researcher at Hanwha Investment & Securities, said Korea’s vulnerable corporate governance, centered on the major shareholder, has been a major cause of the “Korean discount,” leading to lower stock valuations compared with foreign peers.

“There is an expectation that financial authorities will expedite the adoption of advanced policies, including improving dividend procedures and introducing electronic shareholder meeting systems through revisions to the Commercial Act,” the analyst added.