Why does the stock market lose customers?

Shareholders are tired of an unexpected paid-in capital increase, discounted block deal, frequent issuance of convertible bonds and split-off.

CHO WON-KYEONGThe author is a professor at UNIST and the head of the Global Industry-University Cooperation Center. It has become an admitted fact that the Korean stock market is unrelated to its performance. Among Gen Z,

four out of five people are negative about the stock market. Because it is hard to make a profit, the National Pension Service is investing abroad. The stock market became an object of distrust largely because of corporate behavior that doesn’t acknowledge shareholder value.

Professor Oliver Hart, who won the Nobel Prize in economics, said it’s wrong for companies to prioritize profitability only. He argued that the overall benefit of society increases when companies place shareholder value above market value. As he said, it would be nice if shareholders take interest in ESG management other than dividends. What the professor said will sound ideal to shareholders interested in dividends. Of course, dividends are not everything, and research and development (R&D) investment is also important.

Nvidia, the world’s No. 1 semiconductor company, announced a bold plan to buy back its own shares worth $50 billion in last week’s earnings call. The amount of the buyback is equivalent to the market cap of Hyundai Motor. Apple’s solid stock trend is deeply connected to its move to buy back own shares and cancel them. In Korea, Meritz Financial Group made shareholders happy through its share buyback and retirement decision. Most Korean companies are reluctant to retire shares as they can be used to strengthen their management rights. Using their own shares for M&As or transfers to third parties is a factor in the so-called Korea Discount.

Why can’t the Korean stock market get out of the box? While the stock market is generous to IPOs, it is stingy to kick out underperforming companies. The government should be strict on companies that freely use shareholders’ money. Shareholders are tired of an unexpected paid-in capital increase, discounted block deal, frequent issuance of convertible bonds and split-off. This is why the stock market keeps losing its customers.