The KOSPI is rising toward the 6,000 level, but a large number of undervalued corporations still remain in the domestic stock market. As a result, the National Assembly is introducing bills to raise the price-to-book ratio (PBR), drawing attention to whether the value-up policy will become a real driver for small- and mid-cap stock prices.
According to the Korea Exchange (KRX) on the 11th, as of the 10th, 536 corporations out of a total of 807 corporations (excluding preferred shares) on the main board had a price-to-book ratio (PBR) below 1. That is 66.4%. Over the same period on the KOSDAQ, 761 out of 1,694 listed corporations (excluding preferred shares) had a PBR below 1, or 44.9%. Combined, about 52.8% of all listed companies across both markets had a PBR below 1.
Specifically, on the KOSPI, 93 corporations had a PBR of 0–0.3 or less, 199 had 0.31–0.5 or less, 130 had 0.51–0.7 or less, and 113 had 0.71–0.99. On the KOSDAQ, 82 corporations had a PBR of 0–0.3 or less, 221 had 0.31–0.5 or less, 198 had 0.51–0.7, and 239 had 0.71–0.99.
PBR is market capitalization divided by equity capital. A PBR below 1 means the market value of corporations is lower than the asset value that would remain if the corporations were liquidated.
As this low-PBR structure persists, the National Assembly is continuing legislative discussions to encourage boosting corporate value. On the 6th, Democratic Party of Korea lawmaker Kim Hyeon-jung introduced an amendment to the Financial Investment Services and Capital Markets Act that would require corporations with a PBR below 1 for two consecutive years to disclose plans to raise corporate value. The bill would require specific measures to raise corporate value, including plans for disposing of distributable profits for dividends, plans for dividends and share buybacks and cancellations, and plans to improve business structure.
Earlier, in May last year, Democratic Party of Korea lawmaker Lee So-young also introduced a related bill, arguing that listed companies keep their stock prices low during inheritance and gift processes to reduce tax burdens. The bill's core is to tax corporations with a PBR below 0.8 for inheritance and gift tax by reflecting asset value and revenue value as with unlisted shares.
The market is watching whether these legislative moves could lead to a normalization of stock prices for undervalued corporations. Jeong Hae-chang, a researcher at Daishin Securities, said, "The ruling party's push to mandate disclosures of value-up plans and the so-called 'prevention of stock-price suppression' bills are policy directions aimed at normalizing the stock prices of undervalued small and mid-caps."
Some say that mandatory disclosures alone could prompt corporations to improve capital efficiency. Lee Nam-woo, chair of the Korea Governance Forum, said, "Simply mandating disclosures for corporations with a PBR below 1 sends a signal that undervalued stock prices can improve," and added, "It is meaningful in that it encourages corporations to present goals suited to their circumstances and to discuss them with shareholders."
However, some note the need to consider industry characteristics and accounting standard differences. A business community official said, "Traditional manufacturing and other sectors are structurally low in PBR, and calculation methods can vary by corporate accounting standards," and added, "Mandating disclosures with uniform criteria could burden corporations."
Similar policies have been pursued overseas. Japan implemented a corporate value enhancement program and pressured corporations with a PBR below 1 to disclose plans to improve capital efficiency, reducing the share of corporations with a PBR below 1 from 51% at the end of 2022 to 44% at the end of 2023. However, Japan differs in that it encouraged voluntary participation by corporations through market pressure without legal sanctions.