Eui Chun Lee, the CEO of Mediapen, giving the opening speech during the Financial Innovation Forum, hosted by Mediapen and the GFS on May 22 at the KCCI with the theme, “Directions for Upgrading the Korean Finance Policies.”
During the opening address, Eui Chun Lee, the CEO of Mediapen, said that “In order for the ‘value-up’ of the Korean finance, the growth and innovation of the real economy is crucial.”
CEO Lee added that “The outcome of the US presidential election in November will impact not only the global economy, but also the Korean economy as well,” and closed by saying that “While efforts in the political aspects is important for the ‘value-up,’ the growth and innovation of the real economy is more fundamentally important.”
Next, Gap Su Oh, the chairman of the GFS, came up on the stage to give a welcome speech. He said that “In order to raise the value of companies for the increase of the wealth of the investors and provide a base for a prosperous nation, the economic environment should be changed,” and argued that “An environment to attract companies and capital, and nurture cutting-edge big-tech companies should be established.”
The Mediapen Financial Innovation Forum also garnered attention from various fields, including the political sector and the business community. Several recently elected representatives of the 22nd National Assembly – Su Hyun Park (Democratic Party of Korea), Gun Kim (People Power Party; PPP), and Hae Min Lee (Rebuilding Korean Party) – attended the forum to give congratulatory speeches.
Soo-hyun Park, the elected representative, stated, "By promoting regulatory innovation, the government can create an economic system where private autonomy and creativity can flourish, thereby fostering the stability and sustainable growth of the national economy." He also mentioned, "I will strive to establish the necessary legislative activities and institutional frameworks (for the Korean financial value-up), aiming at the stability and sustainable development of the financial market."
Geon Kim, the elected representative, mentioned in his congratulatory speech, "While the government is making efforts to improve the 'Korea Discount,' market reactions are still lukewarm." He emphasized, "Some argue that is the result of a lack of carrot and stick such as specific tax benefits and delisting, but voluntary participation of the companies is crucial.”
Finally, Hae-min Lee, the elected representative, pointed out, "The current economic situation in our country is very unstable," and added, "The Korean economy has a flourishing tertiary and quaternary industrial sector and are intricately connected with the rest of the world, and when discussing economic and financial matters, we cannot separate external factors."
Meanwhile, those who could not attend the event in person delivered congratulatory messages through video – Kyung-ho Choo, the parliamentary leader of the PPP, Kyung-won Na, the former parliamentary leader of the PPP, and Soo-young Park, the elected member of the PPP. They all sympathized with that fact that the Korean economy is currently undergoing a critical turning point, and expressed their interest in the purpose of this financial forum.
Additionally, Woo-yeo Hwang, the chairman of the PPP Emergency Response Committee, Hee-jeong Kim, the elected member of the National Assembly from the PPP, and Bok-hyun Lee, the head of the Financial Supervisory Support, expressed their support and encouragement for the direction of the forum through written congratulatory messages.
The forum started with a presentation from the keynote speaker, Professor Hyung-geon Gu from the Department of Financial Engineering at Ajou University, with the theme, ‘Vision for the value-up of Korean Finance.”
Professor Gu emphasized, “The financial industry is fundamentally a network business, so it’s important for the Korean finance to be connected with the global financial centers and actively participate in this network.” He added that “The northeast Asian financial hub is a task that the government has been pursuing consistently, and achieving this goal will greatly contribute to the value-up of finance.”
Especially, Professor Gu shared his experience of his meeting with Professor Peter Spufford, a reknowned scholar in the field of finance, during his visit to the University of Cambridge in the UK. He said that “According to Professor Spufford, regulations should be lightly enforced on essential matters, but should be strictly enforced.” He cited that “Amsterdam and London are examples of successful implementations, and Singapore could potential follow suit in the near future.”
Next to present was Hyo Seob Lee, Senior Research Fellow and Head of Financial Services Industry Secretary General at the Korea Capital Market Institute, with the topic of ‘Ways to enhance the corporate value of KOSPI and KOSDAQ listed companies’. He attracted attention by mentioning the recent evaluations of Korean listed companies.
On the topic of the domestic stock market, Senior Research Fellow Lee commented that “Over the past 10 years, Korea has shown the lowest rate of increase among the stock indices of major countries,” and analyzed that “In particular, Japan recorded the highest rate of increase among the major countries during this period.”
He then summarized the reasons for the weakness of the Korean stock market into two points. Firstly, he argued that “The fundamental cause lies in the low profitability and lack of growth potential of Korean listed companies.” Senior Research Fellow Lee illustrated this point with data, stating, "In 2022, the income before income tax expense of Korean companies amounted to 197 trillion won, a decrease of 11% compared to the previous year," highlighting a significant contrast with the situation in the United States.
In particular, Senior Research Fellow Lee emphasized, “The causes of the so-called 'Korea Discount' are not solely attributed to low PBR (Price-to-Book Ratio)." He highlighted other factors contributing to the undervaluation of the domestic stock market, including the weakening of ROE (Return on Equity) of listed companies, high volatility in ROE, low shareholder returns, outdated corporate governance structures, and insufficient demand from institutional investors.
Ultimately, he mentioned "Improvement of ROE" as the first measure to increase PBR. Reduction of the cost of capital, and enhancing the expected dividend growth rate were the second and third alternatives. He concluded his presentation by stating, "For the value-up of the Korean stock market, comprehensive efforts such as improving profitability, strengthening shareholder returns, and enhancing corporate governance are necessary."
In the next session, Gibaek Kim, the team leader of the small & medium company value team at Korea Investment Trust Management, took the stage as the second presenter. He presented on the topic of "Shareholder Returns Era and Corporate Value-Up." Initially, Team Leader Kim pointed out, "The undervaluation of the Korean stock market is not only observed in developed countries but also in emerging markets as well." He diagnosed, "While changes are already underway, one solution is the value-up strategy.”
In addition, Team Leader Kim pointed out that "The core of the Korea Discount lies in corporate governance," emphasizing that "Low shareholder returns, along with the low growth and profitability of companies, are the leading causes of the Korea Discount syndrome."
In particular, he emphasized that "While value-up is important, the Korean stock market is already undergoing change driven by three axes, and the value-up program has been announced in that process.” He then outlined three axes of change: social change driven by the investors – strengthening of activism, institutional change such as government-led value-up programs – market modernization, and internal change – generational turnover within companies.
Finally, Team Leader Kim concluded his presentation by stating, "The market environment will become more favorable for investing in high-quality value stocks that return value to the shareholders," and he forecasted, “Within 3 years, all companies will increase their shareholder return rates by up to one-third.”
The third and final presenter, Senior Tax Consultant Seo-hyun Park from the IBK Consulting Center of Industrial Bank of Korea (IBK), focused on the issue of business succession for small and medium-sized enterprises (SMEs), thereby adding diversity to the forum's topics.
He argued that small and medium-sized enterprises (SMEs) facing difficulties in business succession due to issues of gift and inheritance should pay attention to the "business inheritance deduction" policy. Additionally, he suggested that to maximize the effectiveness of the business inheritance deduction policy, the ratio of non-business assets should be minimized.
In particular, Senior Tax Consultant Park emphasized the ‘business inheritance deduction,’ which has been garnering attention in the recent business succession processes. Although business succession typically follows the calculation for gift and inheritance taxes, the government has implemented ‘gift tax special treatment’ and ‘business inheritance deduction’ to facilitate sustainable business succession.
The business inheritance deduction includes deducting the value of the property at the time of inheritance from the taxable amount of inheritance tax when inheriting a business. Depending on the period of business operation, a maximum deduction of 60 billion won is allowed: 30 billion won for periods of 10 to 19 years, 40 billion won for periods of 20 to 29 years, and 60 billion won for periods of 30 years or more.
Additionally, the value of business inheritance assets should be considered. This refers to the amount excluding the proportion of non-business assets in the enterprise value. Non-business assets such as non-business use land, non-business related assets and land rented to other persons, rental income, excess cash holdings, and stocks, bonds, and financial products.
Senior Tax Consultant Park remarked, "The industries eligible for business inheritance deduction under tax laws are very strictly defined," and he argued, "Regardless of the industry, the business inheritance deduction should be applicable." He concluded his presentation with a suggestion to revise the system by raising the deduction limit to facilitate smooth corporate succession.
Written in Korean by Won Woo Lee
Translated into English by Dong Jae Lee