This study surveys the actual practices of paid-in and bonus-issue capital increases of private companies in Korea, analyzing their economic effects and the possible need for regulatory brakes. In Korea, 77 companies held an initial public offering (IPO) from January to August of 1989. Of these, 73 companies increased their capital through the issuance of new shares and bonus shares, a move that significantly increases their capital. Almost 80.4 percent of such increases came via bonus issues, permitted in the transfer of the reserve funds on capital goods.
Pre-IPO capital increases usually occur by issuing new shares to existing shareholders without charging them to make new capital contributions. This is possible by making the capital transfers of revaluated reserve funds. Companies revaluate their assets so that their values are properly reflected in the price of the shares they newly issue before holding an IPO. However, there is growing criticism in Korea today regarding some companies’ practice of generating enormous amounts of capital gains for company owners through the pre-IPO paid-in or bonus-issue capital increases, with some companies even postponing their IPOs and/or deliberately minimizing the amounts of shares they go public with. There is growing public demand for regulations against this practice.
The Korean government can solve this problem by enhancing the efficiency of the business information market and also by establishing an external auditing system to ensure the efficient allocation of resources through the valuation of shares. The government should also impose new sanctions against companies that distort the values of their assets.
비공개기업의 유무상증자에 관한 검토(A review of the paid-in and bonus-issue capital increases of private companies)
공개전 물타기의 규제논의에 대하여(Focusing on the debate on the regulation of pre-ipo scale trading)
|Series Title; No||정책연구시리즈 / 89-08|
|Subject Country||South Korea(Asia and Pacific)|
|Subject||Industry and Technology < Entrepreneurship|
|Holding||KDI; KDI School|