Korea's Ruling Party to Mandate Value-Up Disclosures for Low-PBR Firms

South Korea's ruling Democratic Party of Korea will push to amend the Financial Investment Services and Capital Markets Act to require companies with price-to-book ratios below 1 to submit corporate value enhancement plans.

This marks the second "stock price suppression prevention" measure following a previously proposed bill linking inheritance and gift taxes to share prices.

According to political sources on Thursday, Rep. Kim Hyun-jung of the party's "Korea Premium K-Capital Market Special Committee" plans to introduce the amendment as early as Friday. Multiple committee members, including Chairman Oh Ki-hyung, are expected to co-sponsor the bill.

The legislation gained momentum after President Lee Jae-myung urged swift passage via social media last month.

The amendment would require companies with PBR below 1 for two or more consecutive fiscal years to disclose plans including treasury stock disposal and business restructuring. The measure aims to prevent deliberate stock price suppression while boosting valuations across all low-PBR listed companies.

Rep. Lee So-young of the same party previously proposed inheritance and gift tax amendments that would base taxes on corporate value for companies with PBR below 0.8.

The Democratic Party has adopted a two-track approach: linking inheritance and gift taxes to valuations while mandating value enhancement disclosures. Critics noted that while tax linkage effectively prevents price suppression, the 0.8 PBR threshold is too low given improvements in the Korea Discount.

"Beyond direct tax linkage, we determined that measures encouraging shareholder returns such as expanded dividends and treasury stock cancellation are also necessary," Kim's office said.

Kim's bill sets the PBR threshold at 1 and requires companies falling below this level for two consecutive years to submit value enhancement plans to the Financial Services Commission and Korea Exchange.

The plans must include dividend distribution plans for the fiscal year, treasury stock acquisition, cancellation, and disposal plans, and business restructuring plans.

Committee members expect that merely being designated as a "value enhancement plan submission target" will strengthen market oversight and create preventive effects.

Some raised concerns that while tax linkage could produce powerful effects, the broad scope of affected companies could cause unintended consequences. According to Korea Exchange data as of Wednesday, 549 of 919 KOSPI-listed companies—approximately 60%—have PBR below 1. This far exceeds levels in Japan (33%), the United States (2%), and Europe (13%).

Experts note that industrial structure must be considered. Lee Nam-woo, chairman of the Korea Corporate Governance Forum, said, "In Korea, where capital-intensive industries like semiconductors, automobiles, and steel are prevalent, PBR can be structurally low. Companies with PBR above 0.8 are not necessarily superior."

The approach resembles Japan's value-up policy. In 2023, the Tokyo Stock Exchange required companies with PBR below 1 to disclose corporate value improvement measures. The Nikkei average, which stood at around 28,000 at the end of 2021, rose to surpass 40,000 in 2024 and exceeded 50,000 by the end of 2025 following the disclosure mandate.

Chairman Oh emphasized on Tuesday: "Just as Japan pursued phased PBR reform in 2023-2024, Korea needs 'Korean-style PBR reform' that diagnoses causes of undervaluation and develops countermeasures."

While Rep. Kim will be the primary sponsor, co-sponsors are expected to include Chairman Oh, committee members Kim Nam-geun and Park Hong-bae, and Rep. Jin Sung-joon.

The committee is expected to expedite discussions following President Lee's instruction at the senior secretary meeting on April 26 that "additional institutional reforms are needed to prevent stock price suppression."

The Democratic Party plans to pursue both the tax linkage approach and Kim's bill as a two-track strategy. Individual investors maintain high expectations as these measures could serve as stronger pressure tools against undervalued companies.

A committee official said, "There are cautious views within the committee about whether the stock price suppression prevention law will actually lead to value enhancement. The government also feels burdened regarding implementation feasibility, so we are reviewing 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 on Thursday. The committee discussed measures to activate the Stewardship Code.

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 use asset manager evaluation results in allocating entrusted assets.

Rep. Kim Nam-geun said, "We expect active Stewardship Code activities from asset managers at this year's shareholder meetings."