[Lowest Share of Large Corporations] Regulations Triple if SME Label Removed... "Who Would Want to Be a Large Corporation?"

Regulations Triple When Transitioning from Small to Medium Enterprises
'Peter Pan Syndrome' Causes Avoidance of Large Corporations
77% of Medium Enterprises Feel Government Support Reduction and Regulation Strengthening
Criticism of Regulation Strengthening Based on Hypotheses and Public Opinion
Emphasis on the Importance of Data-Driven 'Scientific Legislation'

"Our country's large corporations compete against global companies, but domestic regulations are confined to the situation within Korea. Meanwhile, Chinese companies, free from such regulations, are accelerating innovation and developing rapidly. There are reports that in some sectors, domestic large corporations have begun to fall behind even Chinese small and medium-sized startups."

On the 24th, Jeong Manki, chairman of the Korea Industrial Federation Forum, said this in a phone interview with reporters ahead of the 'Industrial Development Forum' held at the Korea International Trade Association in Samseong-dong, Seoul.

Regulations Triple When SMEs Lose Their Label

The report titled 'Evaluation and Tasks of Domestic Large Corporations' released by the Industrial Federation Forum on the same day stated that the reason why the scale of large corporations in Korea accounts for only 0.09% of all companies and ranks among the lowest among OECD member countries is due to negative perceptions and discriminatory regulations against large corporations.

According to a survey by the Korea Economic Association, there are more than 300 'large corporation discriminatory regulations' applied differentially by company size in Korea. As of the first half of last year, 342 large corporation discriminatory regulations were applied under 61 laws. This represents an increase of more than 24% in just two years. In particular, when a company graduates from being a small and medium-sized enterprise (SME) and becomes a mid-sized company with total assets exceeding 500 billion KRW, regulations increase more than threefold. When a company belongs to a publicly disclosed business group with total assets exceeding 5 trillion KRW, which is practically recognized as a large corporation, an additional 65 regulations are added, increasing the total to 274. If total assets exceed 10 trillion KRW, the company must comply with more than 340 regulations.

Because of this, companies tend to avoid increasing their asset size, exhibiting a 'Peter Pan syndrome.' The perception has spread that maintaining the company's asset size at a certain level and retaining SME status is more advantageous for business management. In a perception survey conducted last year by the Korea Chamber of Commerce and Industry targeting 300 mid-sized companies that graduated from SMEs within 10 years, 77% of respondents said they felt a reduction in government support and an increase in regulations after becoming mid-sized companies.

Lee Woongjae, senior researcher at the Korea Industrial Federation Forum and author of the report, said, "The domestic legal criteria for SMEs were set in 2015, but since then, factors such as inflation and raw material price increases have not been reflected and remain unchanged," adding, "Although the grace period for legal application has been extended when entering from SME to mid-sized company, the opposite?downgrading from mid-sized to SME?has limited grace period, which is also a limitation."

‘Scientific Legislation’ Should Be Introduced for Corporate Regulations

Professor Ji Inyeop of Dongguk University's Department of Economics, who gave the second presentation, emphasized that 'scientific legislation' should be introduced in corporate regulations in this context. Historically, Korean companies have developed mainly around a few conglomerates. Therefore, the Korean government's corporate regulations have been implemented in a way that separates corporate ownership and control.

Professor Ji pointed out that in the current situation where domestic large corporations have entered a growth maturity and low-growth phase, the perception of making regulations itself must change. He said, "It is necessary to scientifically analyze whether applying the same standards as in the past is still appropriate and to evaluate the effects of regulations first," adding, "This is the time for empirical analysis rather than policies based on various hypotheses, social perceptions, or public opinion."

Professor Ji presented data analyzing the correlation between corporate owners' control and corporate value. This examined the relationship between ownership-control discrepancy and corporate value. Ownership-control discrepancy refers to the difference between controlling shareholders' voting rights and ownership. A higher value means that major shareholders control corporate decisions with fewer shares.

The analysis showed that until the early 2000s, the more major shareholders controlled the company with fewer shares, the lower the corporate value. However, in the recent five years (2018?2022), even when major shareholders controlled the company with fewer shares, corporate value increased. Professor Ji interpreted this as, "In the past, internal and external monitoring functions over the controlling family were inadequate, so ownership-control discrepancy was likely to lead to governance problems. However, since the foreign exchange crisis, internal control systems have improved, reducing the likelihood of such problems."