As explained in our previous newsletter (Link), as part of the Korean government’s efforts to improve corporate governance and the capital market system (including amendments to the Korean Commercial Code mandating cancellation of treasury shares in March 2026), the Korean government held the “Capital Market Stabilization and Normalization Roundtable” (the “Roundtable”) presided over by President Jae-Myung Lee on March 18, 2026. The Roundtable discussed measures to improve capital markets regulation. Following the Roundtable, the Financial Services Commission (the “FSC”) announced the “Measures to Strengthen Structural Foundations for Capital Markets Stability” setting forth concrete policy initiatives reflecting the Roundtable’s discussions. These policy initiatives include: (a) ensuring a fair and transparent market, (b) fostering a corporate culture that upholds shareholder value, (c) establishing a tiered growth system for innovative companies, and (d) improving the investment environment for domestic and foreign capital. In particular, the policy initiatives announced in relation to fostering a corporate culture that respects shareholder value (namely, (i) prohibition of double listings, (ii) prevention of corporate value impairment (including by failing to address chronically undervalued shares) and (iii) enhancing oversight over institutional investors by strengthening the Stewardship Code) may directly affect a Korean company’s overall decision-making, including with regard to corporate governance, financial structure and corporate restructuring transactions, as well as its operation of its board of directors and general meetings of shareholders.
As explained in our previous newsletters, of these shareholder value policy initiatives, the (i) prohibition of duplicative listings and (iii) enhancing oversight over institutional investors by strengthening the Stewardship Code have been formalized through the enactment of the Guidelines on Double Listings and the strengthening of relevant listing and disclosure regulations (link), as well as amendments to the Stewardship Code (Link).
In addition, concerning (ii) prevention of corporate value impairment (including by failing to address chronically undervalued shares), the Korea Exchange (the “KRX”) announced on September 11, 2026, amendments to its listing regulations and the enactment of the “Guidelines on the Selection of Low-PBR Companies, etc.” (the “Guidelines”). The Guidelines are intended as a measure to induce listed companies whose share prices remain undervalued for extended periods to undergo voluntary corporate value enhancement measures. The Guidelines have drawn significant attention from both investors and the corporate sector and warrant careful attention. The Guidelines prescribe those matters regarding the selection and announcement of “Low-PBR Companies” in order to incentivize listed corporations to take voluntary measures to enhance corporate value. The key details are summarized below.
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1.
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Selection and Publication of Low-PBR Companies
The KRX may announce the selected Low-PBR Companies through electronic media and other means on the first Publication Date following the Reference Date. The Guidelines currently set the Publication Date as the first trading day of May and November of each year, and the “Reference Date” is 7 business days prior to the relevant Publication Date.
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2.
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Criteria for Selecting Low-PBR Companies
The KRX selects Low-PBR Companies by first calculating the price-to-book ratio (”PBR”) for all listed companies (excluding foreign companies, Special Purpose Acquisition Companies (SPACs), investment companies, Exchange-Traded Funds (ETFs), other special-type companies, companies already designated as administrative issues or investment alert companies and companies currently undergoing a substantive listing eligibility review). The PBR is calculated by dividing the daily average market capitalization over the most recent 20 trading days, including the Reference Date, by the net asset value from the most recent periodic report (i.e., business report or semi-annual report under the Financial Investment Services and Capital Markets Act) as of the Reference Date.
The KRX then selects Low-PBR Companies based on the following criteria based on whether the company is listed on KOSPI or KOSDAQ:
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Category
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KOSPI
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KOSDAQ
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PBR Threshold
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Within the bottom 25% of its industry classification
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Within the bottom 10% of its industry classification
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Selection Criteria
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1) If the PBRs for all of the most recent 6 Reference Dates fall within the PBR Threshold, or
2) If the PBRs for 5 of the most recent 6 Reference Dates fall within the PBR Threshold, and the PBR for the Reference Date immediately preceding the most recent 6 Reference Dates also falls within the PBR Threshold.
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Industry classification is determined based on the Global Industry Classification Standard (GICS). In the event that a listed company’s industry classification changes, the determination is based on the sector to which the company belonged at the time of the relevant Reference Date. For listed companies without an industry classification, a company is selected as a Low-PBR Company if its PBR for all of the last 6 Reference Dates falls within the PBR threshold calculated for the entire market. If an industry classification includes fewer than 4 companies (for companies listed on the KOSPI) or fewer than 10 companies (for companies listed on the KOSDAQ), a company with the lowest PBR within that industry classification may be selected as a Low-PBR Company.
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3.
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Exemption from Publication as a Low-PBR Company
The KRX may exclude a Low-PBR Company from publication if such a company has disclosed, by the applicable Reference Date, a corporate value enhancement plan as per Article 8, Paragraph 18 of the KOSPI Disclosure Regulation Enforcement Rules or Article 13, Subparagraph 21 of the KOSDAQ Disclosure Regulation Enforcement Rules. This exclusion will apply to 2 consecutive publications following the submission of a valid corporate value enhancement plan. In order for a corporate value enhancement plan to be valid, it must include Attachment No. 1 of the Guidelines, which requires companies to detail the following improvement plans:
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Key Indicators
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(i) Whether the company has a specified mid- to long-term PBR target covering at least 3 years.
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(ii) Whether the company has established an action plan for each item relating to PBR improvement.
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(iii) Whether the company has compared its cost of equity (COE) and return on equity (ROE).
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(iv) Whether the company provides shareholder returns through treasury share repurchases and cancellations, cash dividends or other measures.
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(v) Whether the company incorporates PBR in its key performance indicators (KPIs).
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(vi) Whether the company’s executive compensation system is linked to PBR.
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(vii) Whether the PBR improvement plan has been reported to and resolved by the company’s board of directors.
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(viii) Whether the company discloses the corporate value enhancement plan at least once a year.
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(ix) Whether the company’s management and the board of directors communicate with shareholders at least twice a year.
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(x) Whether the results and communications regarding PBR improvement are actually reflected in the company’s management and operations.
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Category
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Main Causes
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Detailed Causes (Examples)
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Magnitude of Impact
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Controllability
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PER
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Excessive Cost of Equity
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Inadequate corporate governance, information asymmetry, etc.
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High/Medium/
Low
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High/Medium/
Low
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Low Expected Growth Rate
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Decline in market demand, intensified competition, etc.
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High/Medium/
Low
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High/Medium/
Low
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Insufficient Dividend Propensity
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Reduced dividends, lack of predictability, etc.
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High/Medium/
Low
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High/Medium/
Low
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ROE
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Decline in Net Profit Margin
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Fixed cost burden, etc.
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High/Medium/
Low
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High/Medium/
Low
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Decline in Total Asset Turnover
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Capacity utilization, inventory accumulation, etc.
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High/Medium/
Low
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High/Medium/
Low
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Insufficient Financial Leverage
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Interest expense burden, etc.
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High/Medium/
Low
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High/Medium/
Low
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Others
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Other Estimated Causes
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Additional factors specific to the company
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High/Medium/
Low
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High/Medium/
Low
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Category
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Action Plan
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Detailed Content (Example)
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PER
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Reduction of Cost of Equity
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Improvement of corporate governance, expansion of CEO-led investor relation activities, etc.
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Enhancement of Expected Growth Rate
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Investment in new growth areas, expansion of R&D, etc.
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Increase in Dividend Propensity
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Increase in dividends, implementation of quarterly dividends, etc.
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ROE
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Improvement of Net Profit Margin
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Expansion of high-value-added product ratio, cost reduction, etc.
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Enhancement of Total Asset Turnover
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Sale of idle assets, reallocation of resources, etc.
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Optimization of Financial Leverage
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Treasury share buyback and cancellation, increase in equity efficiency, etc.
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Others
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Other Action Plans
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Additional details specific to each company
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Notwithstanding disclosure of a valid corporate value enhancement plan, companies that have remained undervalued for an extended period, as described below, will not be eligible for the publication exclusion:
(1) Companies whose PBRs for all of the most recent 12 Reference Dates fall within any of the following subparagraphs:
1) KOSPI Listed Companies: Within the bottom 25% of its industry classification.
2) KOSDAQ Listed Companies: Within the bottom 10% of its industry classification.
(2) Companies whose PBRs fall under any of the subparagraphs above on 11 of the 12 most recent Reference Dates, and whose PBR on the Reference Date immediately preceding those 12 dates also falls under any of the subparagraphs above.
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4.
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Practical Implications
The Guidelines take effect from September 11, 2026, and Low-PBR Companies will be published on the first trading day of each May and November. Accordingly, the first Low-PBR Companies are scheduled to be published on November 2, 2026. To be excluded from publication, a Low-PBR Company must make the detailed corporate value enhancement plan disclosure described above. Such plan must include a sophisticated set of initiatives, incorporating an assessment of the Company’s cost of equity (COE), a comparison with its return on equity (ROE), and the coupling of PBR improvement targets with management compensation.
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If a company is published as a Low-PBR Company, it will likely face significant pressure from the market and regulatory authorities to improve its corporate value. In practice, it may face increased risks in connection with IR activities and the operation of its board of directors and general meetings of shareholders (such as institutional investors exercising dissenting votes or activist shareholders submitting shareholder proposals). Furthermore, preparing a valid corporate value enhancement plan requires a meticulous analysis of the company’s financial and governance structures. In particular, companies considering structural reorganizations (such as mergers, spin-offs, or split-mergers) or going-private transactions (such as a tender offer followed by a comprehensive share exchange) should carefully manage and address low-PBR related issues in connection with their investor relations and operations of their general meetings of shareholders.
[Korean Version]
