This year, the initial public offering (IPO) market on the Korea Exchange (KOSPI) is expected to record its worst performance in 26 years. Concerns are growing that the number of new listings, excluding special purpose acquisition companies (SPACs) and real estate investment trusts (REITs), may be limited to just one or two. It is virtually the first time since 2000 that the annual IPO count has fallen below two.
The sluggish IPO market should not be viewed merely as a downturn in the public offering sector. Just as in nature, the stock market must continuously cycle to remain healthy. New companies entering the ecosystem through IPOs and the exit of aging or less viable firms create a desirable virtuous cycle. In this regard, the decline in IPOs is a clear warning sign for the health of the stock market ecosystem.
Above all, IPOs are a crucial pathway for companies to secure the funding necessary for growth and for early investors to recoup their investments for reinvestment in new ventures. A shrinking listing market reduces funding options for companies and inevitably weakens the investment cycle for venture and innovative firms.
The reasons for the poor IPO performance this year are multifaceted. While the stock market performed well in the first half of the year, it has entered a correction phase in the second half, diminishing the incentive for companies to go public. However, industry insiders also point to the impact of regulatory measures on dual listings and the focus on attracting listings primarily to the KOSDAQ market.
It is understandable why authorities have implemented regulations on dual listings. When a parent company and its subsidiary are listed simultaneously, it can dilute the corporate value and harm the interests of existing shareholders. There is also a need to address the practice where large companies spin off core businesses into subsidiaries for listing without adequately compensating parent company shareholders. Institutional improvements are undoubtedly necessary to protect investors and restore trust in the capital market.
However, even if the rationale for regulation is valid, authorities must not allow the side effects of excessively stifling the market's funding capabilities. Uniform regulations on dual listings and an uncertain review environment can delay decision-making for companies preparing to go public and disrupt investors' plans to recoup their funds. Policymakers must strike a balance to ensure that the goals of strengthening listing regulations and revitalizing the capital market do not conflict. While enhancing protections for existing shareholders, regulatory standards should be clarified to avoid unduly stifling independent businesses with growth potential.
The strategy of focusing on attracting IPOs to the KOSDAQ market could also have a distorting effect on the market. While it is important to attract good venture companies to revitalize the KOSDAQ, this should not be done artificially. Such actions would represent excessive interference in companies' autonomous decision-making.
As October unfolds, the domestic stock market is once again experiencing volatility. The market has been fluctuating sharply with each external and internal setback. If the IPO market remains frozen in this environment, the overall health of the stock market will inevitably be compromised.
It is time for policymakers to reconsider measures to revive the IPO market. No matter how much venture capital supply is increased and productive finance is promoted, the fundamental functions of the capital market, such as IPOs, must not be weakened. The government and exchanges must take responsibility for creating an environment where quality companies can confidently seek to go public. The longer the IPO drought lasts, the greater the costs will ultimately be borne by companies, investors, and the entire capital market.
* This article has been translated by AI.
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