The Democratic Party of Korea has decided to pursue a dual-track approach in its push for legislation to prevent "stock price suppression," combining inheritance and gift tax linkage with mandatory disclosure of corporate value enhancement plans.
While the inheritance tax linkage method has proven effective in preventing stock price suppression, critics have argued that the price-to-book ratio (PBR) threshold of 0.8 is too low given the ongoing resolution of the Korea Discount. The mandatory disclosure requirement aims to improve undervaluation among listed companies with low PBR.
These considerations are reflected in a proposed amendment to the Capital Markets Act being prepared by Rep. Kim Hyun-jung, a member of the "Korea Premium K-Capital Market Special Committee." The original proposal sought to amend inheritance and gift tax laws to impose taxes based on 80% of net asset value for listed companies with PBR below 0.8.
"Beyond direct tax linkage, we determined that measures to encourage shareholder return policies such as dividend expansion and share buybacks are also necessary," Rep. Kim's office explained.
Rep. Kim's proposal sets the PBR threshold at 1.0 and requires companies falling below this level for two consecutive fiscal years to submit corporate value enhancement plans to the Financial Services Commission and Korea Exchange. The measure aims to deter intentional stock undervaluation through strengthened disclosure obligations.
The plans would include dividend distribution strategies for the fiscal year, plans for dividends and treasury stock acquisition, cancellation, or disposal, and business restructuring initiatives. The special committee expects that simply being designated as a "subject for corporate value enhancement plan submission" would strengthen market surveillance and create preventive effects.
Some committee members expressed concerns that while the inheritance tax linkage could produce strong reflexive effects, its overly broad application could generate unintended consequences. According to Korea Exchange data as of the 4th, 549 of 919 KOSPI-listed companies—approximately 60%—have PBR below 1.0. This far exceeds levels in Japan (33%), the United States (2%), and Europe (13%).
Experts also note the need to consider industrial structure. "In Korea, where capital-intensive industries such as semiconductors, automobiles, and steel predominate, PBR can be structurally low," said Lee Nam-woo, chairman of the Korea Corporate Governance Forum. "A PBR above 0.8 does not necessarily indicate an excellent company."
The approach is seen as similar to Japan's "value-up policy." In 2023, the Tokyo Stock Exchange required companies with PBR below 1.0 to disclose corporate value improvement measures. The Nikkei average, which stood at around 28,000 at the end of 2021, rose following the disclosure mandate's introduction, surpassing 40,000 in 2024 and exceeding 50,000 by the end of 2025.
Rep. Oh Ki-hyoung, chair of the special committee, emphasized on the 3rd: "Just as Japan pursued gradual PBR reform in 2023-2024, Korea also needs 'Korean-style PBR reform' that diagnoses the causes of undervaluation and develops countermeasures."
While Rep. Kim will be the primary sponsor, co-sponsors are expected to include Committee Chair Oh and committee members Reps. Kim Nam-geun, Park Hong-bae, and Jin Sung-joon. The committee is expected to accelerate discussions following President Lee Jae-myung's remarks at a senior secretary meeting on the 26th of last month that "additional institutional reforms to prevent stock price suppression are necessary."
The Democratic Party appears set to pursue Rep. Kim's proposal alongside the inheritance tax linkage as a dual-track approach to prevent stock price suppression. Retail investors maintain high expectations given the potential for stronger pressure on undervalued companies.
"There are cautious views within the committee about whether the stock price suppression prevention law will actually lead to value-up," a committee official said. "The government also feels some burden regarding feasibility, so we are examining various alternatives."
Meanwhile, the K-Capital Market Special Committee received briefings from the Financial Services Commission, Financial Supervisory Service, Ministry of Health and Welfare, and National Pension Service at the National Assembly and discussed measures to strengthen stewardship code implementation. The committee decided to expand stewardship code compliance evaluation and monitoring to strengthen responsible shareholder rights exercise by institutional investors.
The National Pension Service is also reviewing plans to incorporate evaluation results for asset management firms into entrusted asset allocation decisions. Rep. Kim Nam-geun said: "We expect asset management firms to demonstrate active stewardship code engagement at this year's shareholder meetings."
