The government is pushing for the introduction of an 'anti-stock-price-manipulation law' while the Korea Exchange significantly tightens its listing maintenance requirements, leading to anticipated changes in the survival strategies of listed companies. Some analysts suggest that more companies may intentionally choose to delist by neglecting disqualifying factors for maintaining their listings.
According to the Korea Exchange on July 29, as of the previous day's closing price, 521 companies (64.96%) on the KOSPI and 815 companies (47.52%) on the KOSDAQ had a price-to-book ratio (PBR) of less than 0.8. Compared to the beginning of the year, this represents an increase of 4.57 percentage points for the KOSPI and 14.66 percentage points for the KOSDAQ.
The government is expected to include the so-called 'anti-stock-price-manipulation law' in its tax reform plan to be announced early next month, revealing the applicable targets and evaluation criteria. President Lee Jae-myung also urged for expedited processing of related legislation during a report on economic ministry tasks on July 15. While the legislation is becoming more visible, the number of low PBR companies subject to it has actually increased.
The amendment to the Inheritance and Gift Tax Act, referred to as the anti-stock-price-manipulation law, was proposed by Democratic Party lawmaker Lee So-young in May of last year. The key aspect is to apply fair value based on asset and income metrics similar to those of unlisted companies when calculating inheritance and gift taxes for companies with a PBR of less than 0.8, rather than using market value.
Under the current system, listed stocks are evaluated at market value, meaning that lower stock prices reduce the inheritance tax burden. This has led to concerns that companies may intentionally keep their stock prices low by reducing dividends or delaying investments during succession processes.
With the exchange's delisting system reform coinciding with these developments, there are expectations of changes in corporate choices. Starting this month, the exchange has raised the market capitalization standards to 30 billion won for KOSPI and 20 billion won for KOSDAQ, with further increases to 50 billion won and 30 billion won, respectively, set for January next year. Falling below these market capitalization thresholds will lead to formal delisting without the possibility of appeal, resulting in liquidation procedures without a separate improvement period or substantive review of listing qualifications.
In the past, many companies sought to maintain their listing status through capital increases or business restructuring. However, moving forward, there may be an increase in cases where companies opt to delist, considering the costs and burdens associated with maintaining their listings. In particular, if the inheritance and gift tax reforms are implemented, smaller owner-led companies or those with limited external funding needs may reconsider the necessity of remaining listed.
Um Su-jin, a researcher at Hanwha Investment & Securities, stated, "Companies looking to reduce inheritance or gift taxes may have an incentive to either avoid stock price increases or pursue delisting. Unlisted stocks are evaluated based on net profit value and net asset value, applying a lower limit of 80% of net asset value, making the evaluation method relatively flexible compared to listed stocks."
Another financial industry source noted, "With recent enhancements to small shareholder protections, the costs of maintaining a listing have increased, and voluntary delisting has become more complicated due to strengthened shareholder protection procedures. Companies that previously sought delisting may naturally exit the market due to the heightened market capitalization standards and newly established penny stock requirements."
* This article has been translated by AI.
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