The legislation aimed at preventing stock price manipulation, known as the 'stock price manipulation prevention law,' has gained traction in the second half of the year. With a change in leadership within the National Assembly's Planning and Finance Committee, both legislative pathways for review and incorporation of the government's tax reform proposal have opened, increasing the likelihood of passage by the end of the year.
On July 9, political sources reported that Lee So-young, a member of the Democratic Party, recently disclosed the progress of the 'stock price manipulation prevention law.' She announced plans to simultaneously push for the incorporation of the government’s tax reform proposal, which is set to be released at the end of July, and the review by the National Assembly's Planning and Finance Committee.
This bill involves amendments to the inheritance and gift tax laws, primarily focusing on adjusting the current market valuation method for listed stocks. The aim is to reduce incentives for companies with a price-to-book ratio (PBR) below 0.8 to intentionally keep their stock prices low by incorporating both market value and net asset value in the tax assessment for inheritance and gift taxes.
Previously, the opposition party held the chairmanship of the National Assembly's Finance Committee, making it difficult for the committee to review the bill. However, with the recent appointment of Democratic Party member Cho Seung-rae as the chair of the committee, the situation has changed. Additionally, the committee's new secretary, Oh Gi-hyung, who previously chaired the KOSPI 5000 Special Committee, has made discussions at the committee level more feasible.
The most significant variable is the government’s tax reform proposal, which is expected to be announced at the end of this month. Since tax laws are considered budget-related legislation, if included in the government proposal, they can automatically be presented at the National Assembly's end-of-year plenary session under parliamentary rules. Lee has recently met with the Vice Minister of the Ministry of Economy and Finance and has been explaining the necessity of incorporating the government proposal to various working-level departments. She also plans to discuss strategies for the bill's passage with the leadership of the Finance Committee.
Market analysts interpret this bill as a follow-up measure to enhance corporate value following recent amendments to commercial law. Despite improvements in valuations across the domestic stock market, particularly in the semiconductor and artificial intelligence sectors, many companies continue to trade below their book values.
However, some analysts predict that the bill's effects may not extend to all low PBR companies. They suggest that the policy's impact is likely to be more pronounced in companies that have been discounted due to governance and capital allocation issues rather than those suffering from poor market conditions and profitability. This implies that companies capable of implementing policies to enhance corporate value, such as increasing dividends, repurchasing shares, revaluating assets, and improving investor communication, may be the primary beneficiaries of the revaluation.
Lee Jeong-bin, a researcher at Shinhan Investment Corp., stated, "The stock price manipulation prevention law is not merely a policy to boost the stock prices of low PBR companies; it signifies a change in the incentive structure for businesses. The real beneficiaries are likely to be companies with stable return on equity (ROE) and the capacity for shareholder returns rather than those with weak fundamentals."
* This article has been translated by AI.
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