Seoul’s business district (Image courtesy of Pixabay)
SEOUL, March 18 (Korea Bizwire) — South Korean companies could boost their corporate value by increasing shareholder returns, precisely because of their currently low level of shareholder protection, according to a new analysis by the Bank of Korea released on March 17.
The central bank’s report, titled “The Impact of Shareholder Return Policies on Corporate Value,” examined 3,560 companies across 16 of the G20 nations between 2019 and 2023, excluding China due to its state-owned enterprise focus, and Australia and Saudi Arabia due to insufficient data.
The findings paint a stark picture of Korean corporate governance: the nation’s companies ranked 12th among the 16 countries studied, with an average shareholder protection score of 6.8 points. More tellingly, Korean firms posted the lowest dividend payout ratio at 27.2%, while their total shareholder returns — including dividends and share buybacks — amounted to just 0.2 times operating cash flow, surpassing only Turkey and Argentina at 0.1 times.
Korean companies also showed a marked preference for dividends over share buybacks, contrasting sharply with practices in advanced economies like the United States, United Kingdom, and Canada, where stock repurchases are actively employed as a return strategy.
“The data suggests that increasing shareholder returns could be particularly effective in boosting corporate value in Korea, precisely because of our weak shareholder protection framework,” the report concluded. This finding emerged from an analysis that divided the sample into high and low shareholder protection groups, with the latter showing a notably stronger positive correlation between shareholder returns and corporate value.
However, the relationship varies significantly across industries. The report found that in high-growth sectors requiring substantial capital expenditure, particularly in information technology and semiconductors, the impact of shareholder returns on corporate value was less pronounced compared to sectors such as financial services.
“While our findings support the case for increased shareholder returns, we need to establish a balanced approach where capital expenditure for growth can coexist with shareholder returns,” the central bank noted, advocating for continued improvements in corporate governance structures to enhance minority shareholder protection and investor confidence in corporate restructuring processes.
The analysis comes amid growing pressure on Korean companies to align their shareholder return policies with global standards, particularly from foreign investors who have long criticized the relatively low payouts and weak shareholder protections in Asia’s fourth-largest economy.
For Korean businesses, particularly those in traditional industries less dependent on heavy capital investment, the findings suggest that increasing shareholder returns could offer a path to higher valuations — a particularly relevant consideration as they compete for global investment capital in an increasingly competitive market environment.
M. H. Lee (mhlee@koreabizwire.com)
