South Korea's Financial Services Commission and Korea Exchange announced detailed criteria for a low-PBR (Price-to-Book Ratio) company disclosure system on May 28. Starting in November, listed companies in the bottom 25% (KOSPI) or bottom 10% (KOSDAQ) PBR rankings over a cumulative 3-year period will be publicly identified as 'low-PBR' companies, with tags displayed on securities firms' mobile trading systems. The regulation aims to address companies that neglect shareholder value improvement despite persistently low stock valuations. This follows the government's March 18 capital market reform initiative, which proposed public disclosure ('naming and shaming') of companies failing to take action on chronically depressed stock prices. A Korea Exchange simulation estimates 120 to 220 companies (5-10% of all listed firms) will be affected when the first disclosure occurs on November 2.
Korea Exchange Sets 3-Year Cumulative PBR Thresholds by Market and Sector
According to the 'Detailed Criteria for Low-PBR Company Disclosure System' released by the Financial Services Commission and Korea Exchange, PBR will be calculated semi-annually by market and sector. Companies ranking in the bottom 25% (KOSPI) or bottom 10% (KOSDAQ) over a cumulative 3-year period (6 semi-annual periods) will be disclosed as low-PBR companies. The 'low-PBR' tag will appear on securities firms' mobile trading systems (MTS).
Based on a simplified simulation conducted by the exchange as of May, an estimated minimum of 120 companies (80 KOSPI, 40 KOSDAQ) to a maximum of approximately 220 companies (130 KOSPI, 90 KOSDAQ) are expected to be affected. The minimum 120 companies would still be subject to disclosure even if exemption provisions are applied.
The criteria were adjusted from the initial proposal announced in March, which suggested 1 year (2 semi-annual periods) of consecutive bottom 20% ranking. The cumulative period was extended to 6 semi-annual periods (3 years) to account for industry boom-bust cycles and the time required for companies to demonstrate investment results. The percentile threshold was raised from 20% to 25% for KOSPI. The Korea Exchange explained that differentiated criteria for KOSPI and KOSDAQ reflect KOSDAQ's ongoing structural reforms, including expedited delisting of distressed companies and segment separation. KOSDAQ's technology and venture-focused market characteristics also mean relatively lower market-level attention to financial metric management compared to KOSPI.
Sector classification follows the Global Industry Classification Standard (GICS), dividing companies into 11 sectors to account for structural differences across industries. For example, energy companies had an average PBR of 1.08 times and a median of 0.7 times at the end of June. KOSPI-listed companies in this sector would be subject to disclosure if they remain in the bottom 25% for 6 or more semi-annual periods.
Companies Disclosing Improvement Plans Receive 1-Year Exemption
Companies that publicly disclose corporate value enhancement plans, including low-PBR improvement measures, will be exempted from disclosure for 1 year (2 semi-annual periods). However, companies ranking in the bottom 25% (KOSPI) or bottom 10% (KOSDAQ) over a cumulative 6-year period (12 semi-annual periods) by market and sector will be disclosed regardless of whether they have submitted such plans — no exemption applies.
Disclosures will occur on the first trading day of May and November each year, following the submission of annual and semi-annual reports, via the Korea Exchange's disclosure website. In addition to the exchange website, low-PBR tags will be attached to stock names on securities firms' home trading systems (HTS) and mobile trading systems (MTS) to ensure investor awareness.
The regulation will also be incorporated into the substantive review system for delisting and the stewardship code guidelines. When delisting substantive review proceedings are initiated, PBR and other key financial metrics related to shareholder value will be included as evaluation factors. Revisions to the stewardship code guidelines will encourage institutional investors to engage in corporate value enhancement when investing in low-PBR companies, with best practices identified and disseminated through compliance monitoring.
Regulation Revision Enters Public Comment Period in August
Starting next week (scheduled for August 5), the Korea Exchange will begin a public comment period by announcing proposed amendments to regulations and detailed rules for operating the low-PBR company disclosure system. After gathering feedback until August 24, the exchange will finalize criteria by incorporating market participants' opinions. The Korea Exchange regulation amendment will be approved at the Securities and Futures Commission and Financial Services Commission regular meeting in September. The first disclosure is planned for November 2 as scheduled.
FAQ
What are the PBR thresholds for disclosure starting in November?
Companies ranking in the bottom 25% (KOSPI) or bottom 10% (KOSDAQ) in PBR over a cumulative 3-year period (6 semi-annual periods), calculated by market and sector, will be disclosed as low-PBR companies starting November 2.
How many companies will be affected by the low-PBR disclosure rule?
A Korea Exchange simulation as of May estimates that 120 to 220 companies (5-10% of all listed companies) will be subject to disclosure, with a minimum of 80 KOSPI and 40 KOSDAQ companies, and a maximum of 130 KOSPI and 90 KOSDAQ companies.
Can companies avoid disclosure by submitting improvement plans?
Companies that disclose corporate value enhancement plans including low-PBR improvement measures receive a 1-year (2 semi-annual periods) exemption from disclosure. However, companies in the bottom 25% (KOSPI) or bottom 10% (KOSDAQ) over a cumulative 6-year period (12 semi-annual periods) will be disclosed regardless of plan submission — no exemption applies.
