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By Anna J. Park
Investors will be able to decide next year whether to buy the stocks of Korean companies based on the exact size of their dividend payouts, just like in major financial markets' dividend payout systems such as in the U.S. and France.
The Financial Services Commission (FSC) announced Tuesday that it will take steps to overhaul the local dividend payout system to make it compatible with global standards. The FSC, in conjunction with other related entities such as the Ministry of Justice and the Korea Exchange (KRX), plans to propose revisions to the country's capital market law in the second quarter of this year, so that the dividend payout system can be changed as early as next year.
"When the country's dividend payout system is improved so that investors can make investment decisions based on dividend amounts ― as is the global standard ― it is expected to contribute to attracting further investments from global investors," the FSC explained. "The changed system will also make investors more conscious of dividends, which will result in corporations raising their dividend payouts."
So far, listed Korean companies first close their shareholders' register by the end of the year, before declaring their dividend payouts at their shareholders meeting the following spring. This means that investors do not have specific information about the size of the dividend payments they'll receive at the time of buying a stock, making them oblivious to important information on their investments.
The current system in the country has long been a target of criticism from both overseas and local investors.
"Korean companies disclose dividend amounts after the ex-date of the dividends, which is different from international standards," MSCI stated in its Global Market Accessibility Review, published last June.
The country's average low dividend payout ratio, compared to other OECD countries, has been pinpointed as one of the key reasons for the so-called "Korea discount," the undervaluation of Korean companies on the stock market compared to their value. The financial authorities also hope that improving the dividend payout system would encourage more long-term investments, which would mitigate volatility in local stock markets.
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