Explaining the Korea discount: An Empirical Analysis and Explanatory Framework
Author
Isaksen, Rasmus Dølrath
Term
4. semester
Publication year
2024
Submitted on
2024-06-03
Pages
76
Abstract
This thesis investigates whether South Korean equities trade at a persistent valuation discount relative to other markets and what explains it. Using firm-level data for 2018–2022, it documents the discount by comparing average price-to-book ratios at both index and sector levels (financials, healthcare, consumer goods, technology) against four other regions. The study evaluates potential drivers, finding chaebol-related agency problems that disadvantage minority investors as the primary factor; it also highlights tensions with North Korea, hurdles for foreign investors (trading restrictions, limited English disclosure), and corruption within the legal system. A series of Fama–French five-factor regressions explores differences between low and high P/B firms, showing that low P/B firms tend to exhibit characteristics associated with small-cap exposure. Finally, the thesis discusses mitigation options, including the government’s Value-up program, which targets several causes of the discount but will likely require complementary reforms to shift investor sentiment.
Denne afhandling undersøger, om sydkoreanske aktier handler til en vedvarende værdiansættelsesrabat i forhold til andre markeder, og hvad der forklarer den. Med firmadata for 2018–2022 dokumenteres rabatten ved at sammenligne gennemsnitlige pris/bogføringsværdi-forhold på indeks- og sektorniveau (finans, sundhed, forbrugsgoder, teknologi) med fire andre regioner. Afhandlingen vurderer potentielle drivkræfter, hvor chaebols og tilhørende agenturproblemer, der belaster minoritetsinvestorer, fremstår som den vigtigste faktor; derudover nævnes spændinger med Nordkorea, hindringer for udenlandske investorer (handelsrestriktioner, begrænset information på engelsk) og korruption i retssystemet. Fama–French 5-faktor-regressioner belyser forskelle mellem virksomheder med lavt og højt P/B, og resultatet viser, at lavt P/B ofte er forbundet med karakteristika typiske for småkapitaliserede selskaber. Afhandlingen diskuterer mulige indsatser, herunder regeringens Value-up-program, som adresserer flere årsager til rabatten, men sandsynligvis kræver supplerende reformer for at ændre investorernes forventninger.
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