Announcement of Inspection on Offering Price Determination Based on Estimated Earnings and Response Measures
FSS Prepares Checklist and Strengthens Related Disclosures
A significant number of KOSDAQ-listed companies determine their offering prices by evaluating corporate value based on estimated earnings. However, less than 6% of these companies actually achieved their estimated earnings in the year of listing. The financial authorities have prepared a checklist categorizing six types of repeated estimation failures and will further strengthen related disclosures by requiring companies to include forecasts of deviation rates in their business reports.
On December 30, the Financial Supervisory Service released a plan titled "Inspection of Offering Price Determination Based on Estimated Earnings and Future Response." The FSS analyzed 105 companies (excluding SPACs, etc.) among the 213 companies listed between 2022 and 2024 that determined their offering prices based on estimated earnings. The results showed that only 6 companies (5.7%) achieved their estimated earnings in the year of listing. 83 companies (79.1%) failed to achieve the estimates, while 16 companies (15.2%) only partially met their targets.
By year, after the strengthening of related disclosures in October 2023, the revenue deviation rate improved from 44.2% in 2023 to 28.5% in 2024. However, the deviation rates for operating profit and net income estimates remained high in 2024, at 216.3% and 221.7%, respectively.
The FSS pointed out, "If short-term estimates are excessive, this can directly lead to losses for investors who purchase shares after the listing date," and added, "Since the reasons for the deviations are largely common, issuers and underwriters need to preemptively check for repeated estimation errors."
The causes of deviation rates exceeding 10% were classified into six main categories. The most frequently cited reason for estimation failure was "poor business performance" (cited 54 times). This was followed by rising labor costs (28 times), increased R&D expenses (24 times), increases in other costs (23 times), sluggish downstream industries (22 times), and changes in the external environment (21 times). In addition, a comparison of deviation rates by underwriter revealed that even the same underwriter showed significant fluctuations in deviation rates depending on the year and case, indicating a lack of stability.
Accordingly, the FSS has prepared a checklist at the securities registration statement stage to allow for preemptive checks of major estimation failure factors, supporting reasonable estimates by issuers and underwriters and using it as a reference during the review process.
In particular, the FSS plans to improve the reporting format to include future deviation rate forecasts in regular reports, thereby encouraging issuers to make greater efforts to reduce deviation rates. The FSS emphasized, "We will induce strict due diligence focused on investors by disclosing comparative deviation rates by underwriter." The FSS added, "By regularly distributing press releases on the comparative deviation rates of IPO companies by underwriter, investors will be able to directly compare and assess post-listing performance by underwriter, and underwriters will be required to fulfill strict due diligence obligations focused on investors."
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