Macro Brief: Can Korea follow in Japan’s footsteps to unlock shareholder value?

Over the past decade, shareholder returns in Asia have lagged behind the US, driving capital and attention westward, and highlighting the need for change.

Japan has led the way on this front, with reforms that boosted governance and shareholder value, and several Asia countries are following suit, including South Korea, China, and Thailand.

South Korea is emerging as one of the early frontrunners, with strong presidential backing — following the election of Democrat Lee Jae Myung in June 2025 — and a growing retail investor base.

Korea’s equities have long traded at a discount to global peers, often attributed to challenges such as complex cross-shareholding structures, low dividend payouts, and limited board independence. Korea has one of the OECD’s highest tax rates for dividends, for example (up to 45%), which has deterred companies from making distributions.

Meanwhile, family-controlled conglomerates (known as Chaebols) have traditionally not been incentivised to improve valuation, as inheritance tax (50%+) is calculated based on the value of their companies. Chaebols have also tended to prioritise retaining business control and accumulating cash ‘war chests’, instead of shareholder returns.

Looking to address this situation, Korea launched the Corporate Value-Up Program (CVUP) in 2024, designed to align corporate practices with global standards and ultimately enhance shareholder returns. Under the program, listed companies are encouraged to submit multi-year plans targeting improvements in return on equity (ROE) and shareholder value. These include commitments to higher dividend payouts, share buybacks, simplified group structures, and stronger board independence.

In terms of equity results, the Kospi 200 has enjoyed a strong bull run year to date, driven by a price to book re-rating from 0.8 to 1.25 times. This has seen the Korean discount (50% versus developed markets and 35% versus emerging markets on a 20-year average) narrow, but there is room for further improvement. To see more progress, additional ‘carrots‘ may be required on top of the government ‘sticks’ imposed so far, including cuts to either dividend or inhabitant taxes. Nevertheless, these reforms represent structural change and are gaining institutional traction: Korea’s efforts are actively closing the gap between sovereign governance strength and corporate governance standards.