[Exclusive] Corporate Value Program Likely to Include 'Seon (Prior) Dividend Amount and Hu (Post) Dividend Date'

'Blind Dividend Investment' as a Factor in Korea Discount
New Dividend System Included in This Month's Corporate Value-Up Program
Focus on Whether Dividend System Settles at This Year's General Meeting
Exchange to Hold Listening Seminar for Listed Companies at Month-End

Financial authorities are reportedly considering using companies that comply with a dividend system?where the dividend amount is first confirmed and then the dividend record date is set?as a reference indicator in the 'Corporate Value-Up Program' scheduled to be announced at the end of this month. Previously, the government noted that unlike major advanced countries, Korea's dividend record date is set before the shareholder meeting where the dividend amount is finalized, which contributes to the undervaluation of domestic stocks. Accordingly, the government announced improvements to the dividend procedure last year. As a result, whether this related system will be established is expected to be an issue at this year's shareholder meetings.

According to industry sources on the 15th, it is highly likely that the detailed implementation plan of the 'Corporate Value-Up Program' to be disclosed by financial authorities at the end of this month will include content related to the pre-dividend amount and post-dividend record date system announced by the government last year. Until now, most domestic listed companies have first confirmed the shareholders eligible for dividends at the end of the year and then finalized the dividend amount at the shareholder meeting held in March of the following year. As a result, investors have invested without knowing how much dividend they will receive and have accepted the dividend decision made several months later as a matter of course.

This kind of 'blind dividend' has been identified as a factor contributing to the Korea discount, where Korean stocks are undervalued. In advanced countries such as the United States, the dividend amount is announced before the dividend record date, and the dividend record date can be set on a specific day rather than at the end of the year or quarter. The dividend payment date is also minimized in terms of the time gap from the dividend record date. In Korea, the dividend record date is usually set at the end of the year, and it takes about four months until the actual dividend payment.

Accordingly, the government improved the dividend procedure to set the dividend record date after confirming the dividend amount at the March regular shareholder meeting. Listed companies that have completed amendments to their articles of incorporation to separate the dividend record date and the voting rights record date according to government recommendations can set the dividend record date after the dividend amount is finalized, rather than at the end of the year.

The government's inclusion of this dividend system as one of the implementation measures of the Corporate Value-Up Program is interpreted as an intention to activate dividend investment. A senior official in the financial investment industry hinted, "Since it aligns with the purpose of the Corporate Value-Up Program to enhance corporate value by strengthening shareholder return policies, it is being considered as a likely implementation measure." However, since the pre-dividend amount and post-dividend record date system is a recommendation rather than an obligation, it is expected that the system will be established by providing incentives to companies that actively adopt it. It is also reported that when developing a benchmark index composed of companies excelling in shareholder value enhancement, companies complying with the new dividend system guidelines will be used as a reference indicator.

At the time of the system announcement, the Financial Supervisory Service stated, "We plan to provide incentives when selecting excellent disclosure companies to listed companies that voluntarily improve dividend procedures through amendments to their articles of incorporation," showing their intention to promote this.

A representative of the Korea Listed Companies Association said, "It is meaningful in that it has created an environment where institutional and foreign investors can invest based on whether dividends will be paid by operating dividend policies in line with global standards," and evaluated, "With the improvement of dividend procedures, year-end market volatility will decrease, and listed companies can show their willingness to pay dividends externally, which is positive."

As dividends emerge as a key topic in this year's capital market, whether the related system is established is expected to be an issue at this year's shareholder meetings. The Ajou Corporate Management Research Institute forecasted in its '2024 Regular Shareholder Meeting Preview' that "Many agenda items for amendments to articles of incorporation related to the improvement of dividend procedures, which have been noted as one of the causes of undervaluation in the Korean stock market, will be proposed."

It is noteworthy whether companies that have not yet introduced this system will join in, riding the government atmosphere that is focusing on improving corporate value by operating the Corporate Value-Up Program this year. As of the end of last year, among 2,267 listed companies with December fiscal year-end, 636 companies have completed preparations for improving dividend procedures through amendments to their articles of incorporation. Large companies such as Hyundai Motor, SK, POSCO, and CJ have already revised their dividend procedures.

Meanwhile, the Corporate Value-Up Program, which the government is preparing at the end of this month to resolve the Korea discount, is expected to include recommendations for listed companies to announce corporate value enhancement plans such as target price-to-book ratios (PBR) or return on equity (ROE). The Korea Exchange, which is preparing a draft of the Corporate Value-Up Program at the request of the Financial Services Commission, plans to share the draft with listed companies and hold a seminar to gather opinions in the last week of this month.