<Abstract>
Since the 2020s, the number of individual investors in Korea has increased sharply, from 6.1 million in 2019 to 14.2 million in 2022. This change has brought about a growing demand for improvements in capital market legislation to ensure adequate shareholder protection. Since 2022, significant legislative reforms have been made regarding treasury stock, dividend procedures, equity carve-outs and listings of both parent and subsidiaries, the mandatory bid rule, and insider trading disclosure. This paper summarizes these reforms, examines the legal issues, and suggests tasks for further improvement.
Key recent reforms in capital market legislation include: (i) prohibition of allocating new shares of the spun-off company to treasury stocks; (ii) requiring the disclosure of information on the dividend amount before the ex-date; (iii) providing appraisal rights to dissenting shareholders in the case of a hive-down and requiring adequate shareholder protection measures, such as the distribution of subsidiary shares when the subsidiary is listed; (iv) reintroducing the mandatory bid rule after 26 years, allowing partial bids that require acquirers to offer to hold at least 50% + 1 share; and (v) requiring disclosure about trading by insiders 30 days in advance of the transaction.
Korean listed shares have been undervalued compared to their peers with similar financial performance—what is often referred to as the “Korea Discount”—mainly due to low dividend payouts triggered by opaque corporate governance. The incentives of controlling shareholders often do not fully align with those of minority shareholders. Addressing opportunistic behaviors by controlling shareholders is thus the key to handling this low valuation. Efforts should include the refinement of ex-ante rules, as pursued by the recent reforms, and enhancing the efficiency of ex-post standards for damage claims against directors and controllers, as well as providing adequate incentives for shareholder suits.
<Keywords>
Treasury Shares, Spin-Off, Dividend, Ex-Date, Equity Carve-Out, Hive-Down, Mandatory Bid Rule, Plan 10b(5)-1, Shareholding Disclosure, Korea Discount, Retail Investors, Capital Market, Controlling Shareholder, Duty of Loyalty
Joon Hyug Chung, Korea's Legal Reforms in Capital Market for Shareholder Protection - Focusing on Treasury Stock, Dividend Procedures, Equity Carve-Outs and Listings, Mandatory Bid Rule, and Insider Trading Disclosure, Business Law Review, Vol.38, No.2(2024.6), pp.31-92.
<Abstract>
Since the 2020s, the number of individual investors in Korea has increased sharply, from 6.1 million in 2019 to 14.2 million in 2022. This change has brought about a growing demand for improvements in capital market legislation to ensure adequate shareholder protection. Since 2022, significant legislative reforms have been made regarding treasury stock, dividend procedures, equity carve-outs and listings of both parent and subsidiaries, the mandatory bid rule, and insider trading disclosure. This paper summarizes these reforms, examines the legal issues, and suggests tasks for further improvement.
Key recent reforms in capital market legislation include: (i) prohibition of allocating new shares of the spun-off company to treasury stocks; (ii) requiring the disclosure of information on the dividend amount before the ex-date; (iii) providing appraisal rights to dissenting shareholders in the case of a hive-down and requiring adequate shareholder protection measures, such as the distribution of subsidiary shares when the subsidiary is listed; (iv) reintroducing the mandatory bid rule after 26 years, allowing partial bids that require acquirers to offer to hold at least 50% + 1 share; and (v) requiring disclosure about trading by insiders 30 days in advance of the transaction.
Korean listed shares have been undervalued compared to their peers with similar financial performance—what is often referred to as the “Korea Discount”—mainly due to low dividend payouts triggered by opaque corporate governance. The incentives of controlling shareholders often do not fully align with those of minority shareholders. Addressing opportunistic behaviors by controlling shareholders is thus the key to handling this low valuation. Efforts should include the refinement of ex-ante rules, as pursued by the recent reforms, and enhancing the efficiency of ex-post standards for damage claims against directors and controllers, as well as providing adequate incentives for shareholder suits.
<Keywords>
Treasury Shares, Spin-Off, Dividend, Ex-Date, Equity Carve-Out, Hive-Down, Mandatory Bid Rule, Plan 10b(5)-1, Shareholding Disclosure, Korea Discount, Retail Investors, Capital Market, Controlling Shareholder, Duty of Loyalty