Embezzlement, Breach of Trust, and Even Reversals and Changes... A Long Road Ahead for KOSDAQ, 18% Increase in Unfaithful Disclosures

Embezzlement and Breach of Trust Disclosures Up 141% YoY
KOSPI Sees Stable Voluntary Disclosures with Decrease in Voluntary and Increase in Timely Disclosures

Provided by Korea Exchange

[Asia Economy Reporter Minwoo Lee] The number of non-compliant disclosures in the KOSDAQ market increased by 17.8% compared to the previous year. Disclosures related to embezzlement and breach of trust rose by as much as 141%. Although the market size has grown due to increased capital inflow, it is still assessed that a healthy disclosure culture and corporate structure have not yet been established.

According to the Korea Exchange on the 17th, there were a total of 119 non-compliant disclosures in the KOSDAQ market, an increase of 18 cases (17.8%) compared to the previous year. While non-disclosure cases decreased, reversals and changes in disclosures increased. The proportion of non-compliant disclosures by companies experiencing deteriorating management conditions, delisting reasons, and marginal companies (26 companies, 54 cases) increased, leading to the overall rise in non-compliant disclosure cases. This figure is more than five times higher than the 2.8% increase in total KOSDAQ market disclosures.

Overall, the number of disclosures, especially ad hoc disclosures, increased due to the influx of newly listed companies following the activation trend of initial public offerings (IPO) in the KOSDAQ market. The total number of disclosures was 17,508, up 5.3% (879 cases) from the previous year.

Provided by Korea Exchange

However, among the detailed categories, disclosures related to embezzlement and breach of trust increased the most. There were a total of 94 cases, a 141% increase (55 cases) compared to the previous year. Next, disclosures related to corporate existence such as bankruptcy and rehabilitation, frequently occurring in companies with delisting reasons, increased by 110% to 84 cases compared to the previous year. Other major management-related disclosures for investment decisions increased by 41.9% to 176 cases. Disclosures of sales or profit structure changes of 30% or more (15% or more for large corporations) totaled 1,459 cases, up 8.6% from the previous year.

Voluntary disclosures totaled 2,911 cases, down 6.5% from the previous year. Although disclosures of other management matters (21.8%) and patent acquisition disclosures (4.7%) increased, disclosures related to capital raising such as rights offerings or bond subscription and issuance results decreased by 15% (149 cases) due to a decline in corporate fundraising performance.

Fair disclosures also decreased by 5.8% to 947 cases compared to the previous year. Disclosures related to future business and management plans (25.0%), business performance forecasts and predictions (21.1%), provisional business results (1.4%), and ad hoc fair disclosures (37.7%) all declined.

A Korea Exchange official stated, "We will make various and specific efforts to reduce non-compliant disclosures and strengthen the soundness of the KOSDAQ market."

On the other hand, the KOSPI market appears to be establishing a solid disclosure system. While principle-based disclosures are increasing, the mandatory submission of corporate governance reports and English disclosures have also risen. The total number of disclosures by KOSPI-listed companies was 15,349, up 1.9% from the previous year. The average number of disclosures per company was 19.2, similar to 19.1 in the previous year.

Provided by Korea Exchange

Specifically, voluntary disclosures decreased while ad hoc disclosures increased. Voluntary disclosures decreased by 6.6% compared to the previous year. This is attributed to the increase in ad hoc disclosures due to the mandatory submission of corporate governance reports for large-scale listed companies. Ad hoc disclosures totaled 12,588, up 3.2% from the previous year.

Meanwhile, the number of disclosure obligation violations slightly increased to 14 cases from 11 cases the previous year. A Korea Exchange official said, "We will strengthen education for non-compliant disclosure companies and continuously conduct disclosure system briefings and sector-specific meetings for general listed companies to enhance the soundness of the securities market."