The South Korean stock market is facing significant pressure from financial authorities and the Korea Exchange as stricter delisting criteria are enforced. Under the new rules, dozens of companies with stock prices below 1,000 won, known as 'penny stocks,' and those failing to meet the market capitalization requirement of 20 billion won for KOSDAQ are at risk of being designated as management items and facing delisting. As of August 12, 178 out of 1,820 listed KOSDAQ companies, or 9.8%, are in jeopardy due to insufficient market capitalization.
Some small and mid-sized listed companies, along with certain market participants, argue that applying these standards during an unprecedented market downturn is excessively harsh, calling for a grace period or relaxation of the rules. However, investor reactions to these complaints have been largely indifferent, with many viewing the situation as a consequence of the companies' own mismanagement and neglect.
The plight of some KOSDAQ small-cap firms is dire, with annual revenues barely reaching 3 billion won. These companies often engage in deal roadshows to attract investors when seeking initial public offerings (IPOs) or funding, presenting grand visions for the future. Yet, once they secure investment and complete their listings, they frequently abandon investor relations (IR) activities altogether.
In the past year, no analysis reports have been published for 59.9% of KOSDAQ companies, highlighting a severe information gap in the market. This 'IR extinction' phenomenon is particularly pronounced among smaller firms, which tend to disappear from regular investor communications and instead issue excessive convertible bonds and capital increases, undermining shareholder value.
Many companies lack even basic press releases or disclosure plans on their websites, and the personnel responsible for disclosures and IR often change frequently, closing off communication channels. While they readily spend company funds on entertainment and leisure, many fail to share even minimal visions or engage with shareholders. This behavior exemplifies a moral hazard, treating company funds as personal assets.
Compared to advanced foreign markets, the situation in KOSDAQ is even more disheartening. In the U.S. market, companies can actively engage shareholders through conference calls, even while operating at a loss, to present growth roadmaps. In Japan, shareholders are treated as 'consumers and loyal customers,' with long-term investors receiving coupons for company products or services as part of shareholder benefits, actively promoting stock prices and shareholder returns. In contrast, many lower-tier KOSDAQ companies merely complain about harsh regulations without making genuine efforts to boost their stock prices.
The Korea Exchange's consideration of enhancing IR activities and gradually mandating them is part of an effort to address the undervaluation of KOSDAQ and the asymmetry of information. In a climate where analysis reports are scarce and companies remain silent, the distinction between quality and struggling firms blurs, perpetuating a cycle of discounting across the KOSDAQ.
The most critical issue is that the burden of delisting falls squarely on retail investors. Some major shareholders and executives, having secured funds through the IPO process, may even find relief in being 'freed from disclosure obligations' if their companies are delisted, a phenomenon that fuels market anger.
There are reasons behind the plummeting stock prices and market capitalization. Before blaming the system or expressing grievances, companies should first ask themselves whether they have ever made an effort to present a future vision to shareholders or actively communicate beyond deal roadshows. Have they genuinely worked to support their stock prices?
True value enhancement begins not with demands for regulatory relaxation but with a fundamental sense of responsibility toward shareholders and ongoing communication.
* This article has been translated by AI.
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