Dividend policy changes pushed to narrow 'Korea discount'

Finance

Published: 31 Jan. 2023, 18:46 Updated: 01 Feb. 2023, 14:22

Dividend policy changes pushed to narrow 'Korea discount'

Financial Services Commission Chairman Kim Joo-hyun speaks at a briefing in central Seoul on Friday. [YONHAP]

In line with continuing efforts to battle the "Korea discount," the Financial Services Commission (FSC) will encourage companies to announce the dividend payout amount earlier, in line with international standards.

The change will be voluntarily.

In many advanced markets, companies announce the dividend amount before the ex-dividend date, the day after which the holder no longer receives the next dividend payout. This ensures that buyer and seller know what they stand to gain or lose by making a trade before the dividend is actually paid, allowing for efficient pricing.

Korean companies can declare their dividend at anytime, and tend to do so after the ex-dividend date, which means some investors are buying the shares without knowing the payout they will be getting.

To make that happen, the FSC will revise the model articles of association for listed companies by February. It will require companies to disclose in their corporate governance reports whether they have improved the dividend system starting next year.

“Companies will be able to change articles of association during their shareholder meeting in March, change the ex-dividend date of the dividends and apply the improved procedure starting in 2024,” the FSC said in a statement on Tuesday.

The lack of disclosure and the low payout ratios may reduce the time in which investors stay committed to the shares, leading to short-term investment and churning of portfolios.

Korea's payout ratio is comparatively low at 20.1 percent. In Britain, it is 45.7 percent, the United States 40.5 percent and Japan 36.5 percent, according the Bloomberg.

The FSC added that stock volatility could be reduced if the dividend system is improved, encouraging investors to invest for the long term.

Companies “will not be required to finalize the ex-date of dividends after confirming dividend amount,” added the FSC. But those that do not follow the international standard will be required to explain reasons for their decision in the corporate governance report.

Korea Exchange CEO Sohn Byung-doo speaks at a press conference held in Yeouido, western Seoul on Tuesday. [YONHAP]

On the same day, the Korea Exchange said it plans to extend the trading hours for derivative products.

The local exchange said it will take the opening of the derivative market to 8:45 a.m. from 9:00 a.m. and also allow nighttime trading.

“Most overseas stock markets ease volatility of the spot market by starting the trading of derivative products before the market opens,” said Korea Exchange Chairman Sohn Byungdoo at a press conference held in Yeouido, western Seoul.

Exactly how late trading will go has not been decided.

“Regulation needs to be revised to extend derivative market, which requires the approval of the FSC,” said Lee Sang-kyun, a spokesperson for Korea Exchange.

The exchange’s goal is to achieve a premium, dynamic, credible and efficient market, it said.

BY JIN MIN-JI [jin.minji@joongang.co.kr]