President Lee Jae-myung on the 15th said a "stock price suppression prevention act" is needed to normalize the capital market by preventing the undervaluation of listed shares, instructing, "Legislation in the National Assembly is not going well and is being delayed, so obtain cooperation one way or another and speed up the legislation."
On this day at Cheong Wa Dae, President Lee presided over work reports from economic ministries including the Ministry of Planning and Budget and the Financial Services Commission, and then said this after asking Financial Services Commission Chairperson Lee Eog-weon, "I understand you are preparing a comprehensive plan to normalize the capital market and the stock market; how is it going now?"
The "stock price suppression prevention act" would tax inherited and gifted shares of controlling shareholders of listed companies with a price-to-book ratio (PBR) below 0.8 based on the company's asset value and revenue value, not the stock price. The bill is based on the claim that, ahead of management succession, stock prices are artificially kept low to save on inheritance and gift taxes, and that this leads to the undervaluation of Korean stocks (Korea discount). Democratic Party of Korea lawmaker Lee So-young introduced it as the lead sponsor in May.
President Lee said, "Normalizing and advancing the capital market is a very important national policy," adding, "In our society's asset allocation, the share of real estate is still too large. It is very primitive. Everyone clings to real estate." He also said, "Available resources are tied up in real estate, producing very unreasonable results for economic growth, development, and resource allocation," and added, "As for the National Assembly's legislative situation, it seems measures like the 'stock price suppression prevention act' are still not moving."
In response, Chairperson Lee Eog-weon explained, "There are two methods of stock price suppression: on one side, there is the method under the Inheritance and Gift Tax Act, and there is also an aspect of moving in tandem by imposing penalties when the PBR is intentionally reduced."
◇"Is a low stock price always due to irregularities?" Concerns coexist
Under the current Inheritance and Gift Tax Act, when valuing the market price of listed shares, the average of closing prices on the exchange over the two months before and after the valuation date (a total of four months) is used. In contrast, the stock price suppression prevention act would, in cases of "PBR below 0.8," have the valuation amount calculated and applied using the supplemental valuation method in the Inheritance and Gift Tax Act instead of the stock price.
The market is paying attention to this law on the grounds that companies lacking efforts for "shareholder returns" need to be sanctioned. However, some are also concerned about the premise that "low PBR equals a controlling shareholder's intentional adjustment." They say it overlooks cases where the actual PBR is low due to the structure or profitability of each industry. Rather than finding the causes of low stock prices, the argument goes, concluding solely that they are the result of the controlling shareholder's irregularities will further weaken corporate competitiveness and cause confusion in the market.