Establishing a New Stock Market for Shareholder Value Oriented Firms in Korea

Abstract

We propose introducing more competition into the design and implementation of investor protection in Korea. Our proposal in Korea is to start small. We focus on the possibility of giving firms in Korea greater choice within the existing regulatory regime. As an initial (and obtainable) goal we propose taking an approach similar to that pursued by the Brazilian Stock Exchange (Bovespa) to establish a new voluntary section for firms satisfying global corporate governance standards on the Korean Stock Exchange (KSE). Another option would be to go the seemingly opposite direction and allow some firms to opt out of any domestic regulation and instead to follow the regulatory regime of a foreign country (putting these firms in their own section of the stock market and enhancing the level of enforcement of foreign regulators through the assistance of Korean regulators). Such an approach would allow firms the ability to choose for themselves - within limits - the level of investor protections they desire (through a listing on a foreign exchange). Firms already with large and entrenched controlling shareholders or managers and a dispersed pool of minority investors will probably not take advantage of the ability to opt into a higher level of corporate governance. Instead, our suggested reforms will assist primarily newer companies seeking to raise funds from the public capital markets for the first time. Also, even among more established firms, a small, yet growing, number of firms under professional management may be interested in moving into a more advanced section of the KSE. Indirectly, we predict that feedback effects through the creation of a new investor-protection environment (with accompanying norms and institutions) will affect the rest of Korea's capital markets.