Outlook for the Capital Market System
Momentum Builds for Corporate Governance Reform and Minority Shareholder Protection
Democratic Party's Economic Policies Expected to Gain Traction After Impeachment Decision
The Constitutional Court's decision to uphold the impeachment is expected to bring significant changes to the overall capital market system that the Yoon Seok-yeol administration has been pursuing. Not only the amendment to the Commercial Act, which was stalled due to the government's exercise of the right to request reconsideration (veto), but also the so-called 'split listing' regulation and corporate governance improvements, which the Democratic Party of Korea had previously pledged, are expected to gain renewed momentum.
Hwang Se-woon, a senior researcher at the Korea Capital Market Institute, said on the morning of the 4th regarding the Constitutional Court's impeachment decision, "It is immediately a transition to an early presidential election system. The decision to uphold the impeachment itself means that the possibility of a regime change has increased," adding, "The Democratic Party's economic and financial policies could materialize, and the market will have to adapt to this new situation."
Since a presidential election must be held within 60 days, each party is expected to quickly disclose their pledges. Inside and outside the market, there is an analysis that if the Democratic Party wins the next presidency, policies focusing on improving corporate governance and strengthening protection for minority shareholders will pour out.
A professor A from a university in Seoul, who requested anonymity, predicted, "Policies that reduce the influence of major shareholders and protect minority shareholders, restructuring of chaebol governance through strengthened regulations on circular shareholding, and systems that enhance corporate transparency such as separate election of audit committee members and strengthening board independence will gain momentum once again." Lee Jae-myung, the leader of the Democratic Party, pledged in the last presidential election to improve the short-selling system, which works disadvantageously for individual investors, and to effectively ban 'split listing,' where companies list newly established companies through physical division.
The amendment to the Commercial Act, which was passed by the opposition-led National Assembly plenary session but stalled earlier this month due to the government's veto, is also evaluated to have a higher possibility of implementation. Researcher Hwang said, "It will be reintroduced after the presidential election, and if passed, there will be no veto exercise at that time," adding, "The amendment to the Commercial Act can play a certain role in terms of corporate governance improvement, which the Democratic Party has emphasized."
Professor B from a business school in Seoul also said, "If the impeachment is upheld, power will shift to the Democratic Party," and "The amendment to the Commercial Act should be considered as going into effect." However, he also pointed out, "While I fully agree with the purpose of protecting minority shareholders, there are ambiguous aspects," and "As the business community fears, it will clearly slow down corporate management decision-making." The bill mainly expands the duty of loyalty of directors to include 'shareholders.' Kim Young-ik, a professor at Sogang University Graduate School of Economics, said, "The amendment to the Commercial Act will pass," adding, "(With a regime change, the new government) will actively stimulate the economy through fiscal policy. I do not think they will regulate chaebols as strongly as in the past."
Along with this, the 'Value-Up (corporate value enhancement) program,' which the Yoon Seok-yeol administration has strongly promoted, is expected to continue even if the regime changes, in terms of resolving the chronic problem of the Korea discount in the domestic stock market. Researcher Hwang said, "Looking at the Democratic Party's policies, there was the 'Korea Booster Project,' which is essentially in line with Value-Up," and predicted, "They might even approach it in a more proactive manner." Lee Nam-woo, chairman of the Korea Corporate Governance Forum, positively evaluated, "Democratic Party lawmakers have a high understanding of the capital market and are sincere about investor protection."
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