[Public Voices] Corporate Value-Up Program Should Take a Market-Friendly Approach

For Positive Change in Shareholder Return Policies
Application Should Vary by Industry and Company Circumstances

The government is set to soon announce various incentives and basic directions to promote shareholder returns through the ‘Corporate Value-Up Program.’ This program aims to encourage listed companies to voluntarily boost their stock prices and to resolve the Korea discount (undervaluation of the Korean stock market).

In the stock market, the atmosphere is heating up with expectations of stock price increases centered around low price-to-book ratios (PBR). The fact that the Nikkei 225 average stock price reached its highest level in 34 years after Japan introduced its Corporate Value-Up Program is also influencing the mood in our market. However, vague expectations that we will achieve the same results as Japan should be avoided.

The Japanese government has pursued corporate value enhancement policies for a long time. It has worked to improve corporate governance, including protecting minority shareholder rights, and to attract overseas capital. These policies, along with the persistent negative interest rates and weak yen phenomenon after the COVID-19 pandemic, have significantly boosted corporate performance and economic growth through global supply chain integration, business restructuring, and cost reduction.

The intent of the program to resolve the Korea discount is commendable. However, instead of directly benchmarking Japan, we must minimize side effects by fully considering the characteristics of individual companies, the situations faced by Korean companies, and the stock market environment. Rather than applying uniform standards to all companies, a market-friendly approach should be taken that acknowledges significant differences in management policies and investor styles depending on the industry and the life cycle of the company.

When a company enters its growth phase, sales and profits increase rapidly, and market dominance expands, classifying it as a growth stock. During this period, price-to-earnings ratio (PER) and PBR are high, but companies tend to be reluctant to return capital to shareholders in order to secure internal funds for future growth investments. Conversely, companies in the maturity phase are classified as dividend stocks, providing stable stock investment returns based on steady growth and high return on capital.

For any type of company, externally imposed changes to shareholder return policies may only have short-term effects. Long-term dividends and sustained stock price increases are difficult to achieve. Changes from existing shareholder return policies can negatively impact the company’s sustainability and shareholder predictability. It is important to pursue appropriate corporate value-up strategies according to the industry and the company’s circumstances.

The government should refrain from direct intervention in corporate management and allow companies to autonomously improve efficiency and competitiveness to enhance corporate value. In particular, taxes are one of the main causes of the Korea discount. The corporate tax burden lowers corporate competitiveness, affecting growth and dividend capacity, and can depress stock prices. Korea’s corporate tax burden is relatively high among OECD member countries. The multi-tiered progressive structure of the tax base should be eased, and the top tax rate lowered.

The predatory inheritance tax rate, which is among the highest in OECD countries, causes the largest shareholders to suppress stock prices to reduce the value of inherited shares and the corresponding inheritance tax. Abolishing the largest shareholder surcharge tax and sufficiently lowering inheritance taxes or converting them into capital gains taxes, which are transfer taxes when inherited assets are sold, would serve as incentives for stock price increases. Instead, the largest shareholders should communicate with minority shareholders, foreign investors, and expand institutional investors’ participation in management for the prosperity of future generations. They should strive to promote the company’s long-term growth and enhance corporate value.

Yeon Gang-heum, Professor Emeritus, Yonsei University School of Business