Buying stocks means becoming a shareholder of the company.
However, in the Korean capital market, minority shareholders (most individual investors)
It is more like a spectator pretending to be a shareholder.
What is minority shareholder protection?
Minority shareholders = shareholders other than the controlling shareholder (majority shareholder/owner)
The key to protection:
The board of directors must represent the interests of minority shareholders.
- Important decisions (CB issuance, M&A, dividends) must be fair to minority shareholders.
- Right to access information: Minority shareholders must also know important information in a timely manner
The reality in Korea is different.
Structural problems in protecting minority shareholders in Korea
① Absence of independence of the board of directors
Although there is an outside director system:
The person recommended by the majority shareholder is an outside director = in effect, the representative of the majority shareholder.
- The board of directors is a formality, and substantive decision-making is monopolized by major shareholders.
Carroll et al. (2024): Infringement on minority shareholder interests occurs structurally in a concurrent executive structure.
② Conflict of interest in issuing CB and BW
Major shareholder consolidated company acquires CB → recovers funds under favorable conditions
- Minority shareholders only suffer dilution
- Disclosure is minimal, structure is legal
Heo Seo-young (2025): Minority shareholder wealth is systematically transferred during the CB issuance-conversion process.
③ Unclearness of dividend policy
Dividend decision rights virtually monopolized by major shareholders
- Accumulation of capital in the name of in-house reserves → Strengthening the control of major shareholders
- Korea’s dividend payout ratio is significantly lower than international standards
④ Information asymmetry
Major shareholders and executives have access to internal information
- Minority shareholders have access only to the price reflected after the announcement.
- CB conversion timing = typical case of utilizing internal information
Why is this the key to Korea Discount?
The biggest reasons why foreign institutional investors apply discount rates to the Korean market:
“A market where the interests of minority shareholders are not protected.”
Min (2016): In the conglomerate structure, exploitation of minority shareholders occurs through legal channels.
Kim et al. (2021): This exploitation structure results in an increase in the cost of capital.
What can individual investors do?
It is difficult to change the system in the short term.
However, dangerous rescues can be avoided.
Check CB issuance history
- Check board composition and outside director history
- Track changes in shares of major shareholders
- RaymondsRisk relational risk index inquiry
If you know the structure, you can avoid it.
key message
Protection of minority shareholders is also a systemic issue,
It is also an issue of information power of individual investors.
Relational risk was created to reduce information asymmetry.
■ Reference materials
Min (2016): Chaebol structure and legal exploitation
- Kim et al. (2021): Expropriation and rising cost of capital.
-Carroll et al. (2024): Concurrently serving as executive officer and violating minority shareholder interests
- Seoyoung Heo (2025): CB conversion and loss of minority shareholders
- RaymondsRisk White Paper: https://www.konnect-ai.net/whitepaper
#relationalrisk #raymondsrisk #raymondsindex #konnectai
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