Korea Exchange (KRX) recently announced draft guidelines requiring low price-to-book ratio (PBR) companies to disclose a compliance rate across 10 key performance indicators when submitting corporate value improvement plans. According to financial industry sources on the 6th, the exchange introduced these requirements to prevent listed companies from submitting merely formalistic disclosures while receiving one-year exemptions from public naming. The guidelines establish mandatory disclosure items including whether executive compensation is linked to PBR improvement and whether PBR metrics are reflected in key performance indicators.
KRX Establishes 10-Item Compliance Rate Disclosure Requirement
Under the proposed "Guidelines on Selection of Low PBR Companies," companies falling below the low PBR threshold (bottom 25% for KOSPI, bottom 10% for KOSDAQ) can avoid being publicly listed for one year if they disclose a corporate value enhancement plan including PBR improvement measures by the PBR reference date. The exchange now mandates that companies submitting such plans must check compliance (Y/N) for 10 core items and calculate an overall compliance rate expressed as a percentage.
The 10 mandatory indicators include: establishing mid-to-long-term PBR targets spanning three or more years, setting PBR improvement action plans, comparing cost of equity (COE) with return on equity (ROE), and implementing shareholder return measures such as share buybacks, cancellations, and dividends.
Guidelines Include Executive Compensation and Board Accountability Verification
The exchange incorporated multiple items designed to verify governance structure and executive accountability. Companies must disclose whether executive compensation systems are linked to PBR performance, whether PBR metrics are included in key performance indicators (KPIs), whether board reporting and resolutions occurred, and whether management and board communication with shareholders was actually reflected in business operations.
Market observers have previously criticized companies for issuing declarative statements about improving share prices without linking these commitments to executive bonuses or compensation structures. The new disclosure format requires listed companies to transparently reveal whether PBR improvement performance directly affects CEO and executive remuneration.
Exchange Defines PBR Calculation Standards for Net Assets and Market Cap
KRX established technical specifications for PBR calculation. When calculating net asset value, companies must exclude "non-controlling interests in consolidated statements of financial position." For market capitalization calculations, companies must include not only common shares but also listed "class shares (such as preferred shares)."
Public Comment Period Runs Until the 24th
The exchange plans to complete the guideline establishment process after collecting market feedback on the draft through the 24th.
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FAQ
What did Korea Exchange announce regarding low PBR companies?
Korea Exchange announced draft guidelines requiring low PBR companies to disclose a compliance rate across 10 key indicators when submitting corporate value improvement plans. Companies must check compliance for items including executive compensation linkage to PBR and KPI inclusion, then calculate an overall compliance percentage.
Why did KRX establish these mandatory disclosure requirements?
The exchange introduced these requirements to prevent listed companies from submitting merely formalistic disclosures while receiving one-year exemptions from public naming under the "naming and shaming" system. The guidelines aim to ensure companies demonstrate genuine commitment to PBR improvement through governance accountability measures.
