The South Korean stock market is facing significant pressure from financial authorities and the Korea Exchange as stricter delisting criteria are enforced. Under the new rules, dozens of 'penny stocks' with share prices below 1,000 won and companies failing to meet the market capitalization requirement of 20 billion won for KOSDAQ are at risk of being designated as management items and facing delisting. As of August 12, 182 out of 1,820 listed KOSDAQ companies, or 10%, are in jeopardy due to insufficient market capitalization.
Some small and mid-sized listed companies are calling for a grace period or relaxation of the rules, arguing that applying the standards in the current unusual market conditions is excessively harsh. However, investors have responded coldly to these pleas, viewing them as a consequence of the companies' own mismanagement and neglect.
The situation for some small KOSDAQ firms is dire, with annual revenues barely reaching 3 billion won. These companies often engage in deal roadshows to attract investors when they are in urgent need of funding or during their initial public offerings, presenting glamorous future prospects. Yet, once they secure investment and complete their listings, they tend to abandon investor relations altogether.
In the past year, no analysis reports have been issued for 59.9% of KOSDAQ companies, highlighting a severe information gap in the market. This 'IR extinction' phenomenon is particularly pronounced among smaller firms with low market capitalization and revenue. Regular communication with investors, such as non-deal roadshows or post-IPO briefings, has become rare, while these companies frequently issue convertible bonds and conduct capital increases that undermine shareholder value.
Many companies lack even basic press releases or disclosure plans on their websites, and the personnel responsible for investor relations often change frequently, closing off communication channels. While they are quick to spend company funds on entertainment and leisure, many fail to share even minimal visions or engage in communication with shareholders. This behavior exemplifies a moral hazard, treating company funds as personal assets.
Compared to advanced foreign markets, the reality for KOSDAQ is even more disheartening. In the U.S. market, companies can actively engage shareholders through conference calls, even while operating at a loss, to present growth roadmaps. In Japan, shareholders are treated as 'consumers and loyal customers,' with long-term investors receiving coupons for the company's products or services as part of shareholder benefits, actively promoting stock prices and shareholder returns. In contrast, many lower-tier KOSDAQ companies merely complain about the harshness of the regulations without making genuine efforts to boost their stock prices.
The Korea Exchange's consideration of mandatory IR activation and gradual implementation aims to address the undervaluation of KOSDAQ and the asymmetry of information. In a situation where analysis reports are scarce and companies remain silent, a vicious cycle ensues where quality firms and struggling companies cannot be distinguished, leading to an overall discount for KOSDAQ.
The most critical issue is that the burden of delisting falls entirely on retail investors. Some major shareholders and executives, having secured investment through the IPO, may even feel relieved when a company is delisted, claiming they are 'free from disclosure obligations.' This is why the market's anger is not exaggerated.
There are reasons behind the decline in stock prices and the fall to penny stock status. Before blaming the system and expressing grievances, companies should first ask themselves whether they have ever made an effort to present a future vision to shareholders or actively communicate, aside from deal roadshows for funding. Have they genuinely worked to boost their stock prices?
True value enhancement begins not with demands for regulatory relaxation but with a fundamental sense of responsibility toward shareholders and ongoing communication.
* This article has been translated by AI.
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