Global Investors Pressure South Korea’s Chaebols to Accelerate Corporate Governance Reforms
South Korea's powerful family-controlled business groups are facing growing pressure from international investors to improve corporate governance, increase shareholder returns and make better use of their financial resources. The renewed demand comes as the country attempts to address a long-standing problem in its stock market: South Korean companies often trade at significantly lower valuations than comparable businesses in other major economies.
Despite a strong rally in South Korean equities during 2026, investors remain concerned that several large conglomerates are moving too slowly on reforms. Samsung Electronics has become one of the most prominent examples of this growing disagreement between companies and shareholders.
The debate is increasingly important for South Korea because attracting more international investment will depend not only on market performance but also on whether companies demonstrate greater transparency and accountability.
Why Investors Are Targeting South Korea’s Chaebols
Chaebols are large South Korean business groups traditionally controlled by powerful founding families. They operate across multiple industries, including electronics, automobiles, construction, finance and heavy manufacturing.
Samsung, Hyundai Motor and SK Group are among the country's most influential corporate groups.
These conglomerates have played a major role in South Korea's economic development. However, their ownership structures, complex corporate relationships and decision-making practices have frequently attracted criticism from minority shareholders.
International investors argue that companies should give greater importance to shareholder interests, particularly when making decisions about dividends, share buybacks, acquisitions and capital allocation.
Investors also want stronger independent board oversight and clearer explanations of how corporate decisions create value for all shareholders rather than primarily benefiting controlling stakeholders.
Korea Discount Remains a Major Concern
The central issue behind the reform campaign is the so-called Korea Discount, a term used to describe the relatively low valuations of South Korean companies compared with businesses in other global markets.
South Korea's benchmark KOSPI index has gained approximately 35% in 2026. However, its valuation remains considerably below international market averages.
The index is trading at a forward price-to-earnings ratio of approximately 3.85, compared with 17.64 for the MSCI World index. Around 70% of KOSPI-listed companies trade at or below their book value.
These figures suggest that investors are not fully reflecting the underlying value of many South Korean businesses in their share prices.
However, low valuations do not automatically mean that stocks are undervalued or attractive investments. Investors also consider profitability, future earnings, management quality, corporate risks and the reliability of shareholder returns.
Closing the valuation gap will therefore require companies to demonstrate sustainable improvements rather than relying on temporary market rallies.
Samsung Electronics Faces Growing Shareholder Pressure
Samsung Electronics has become a major focus of the corporate governance debate.
The company reported record quarterly operating profit in the third quarter of 2026, supported by its strong position in the technology industry. Nevertheless, its valuation remains relatively low compared with several major international semiconductor companies.
Samsung trades at approximately 1.87 times its book value, compared with 7.8 times for Micron and 29 times for Nvidia.
International investors believe the company could do more to reward shareholders, particularly given its financial performance.
In August, Samsung announced a record dividend of 30 trillion won, equivalent to approximately $22.35 billion. However, the company postponed its decision on how to use another 55 trillion won to 75 trillion won earmarked for shareholder returns until January.
The delay has attracted criticism from investors who want greater clarity about when and how the remaining capital will be distributed.
Samsung board chairman Shin Je-yoon recently held discussions with major global investors, including representatives of Capital Group, Artisan and Fidelity. The engagement reflects the growing importance of shareholder expectations in the company's capital allocation decisions.
SK Hynix Sets a Different Example
The approach taken by rival semiconductor company SK Hynix has added another dimension to the debate.
SK Hynix announced a shareholder return package worth $75 billion last month. Its plan has attracted attention because it demonstrates a substantial commitment to returning capital to investors.
The difference between the approaches of Samsung Electronics and SK Hynix is particularly significant because both companies have major influence over South Korea's stock market.
Together, they represent slightly more than half of the KOSPI's total market capitalisation.
Consequently, their decisions regarding dividends, share repurchases and capital allocation can influence investor sentiment towards the wider Korean market.
For international investors, the issue is not simply how much money companies distribute. They also want predictable policies, transparent decision-making and a clear explanation of how businesses balance shareholder returns with future investment requirements.
Government Reforms Face Implementation Challenges
South Korean President Lee Jae Myung's administration has been pursuing corporate governance reforms to make the country's stock market more attractive to domestic and international investors.
One important measure requires companies to cancel treasury shares, with the relevant deadline set for September 2027.
Treasury shares are shares that a company has previously issued and subsequently repurchased. Their cancellation permanently removes them from the company's outstanding share capital.
Investors often favour cancellation because it can prevent companies from using repurchased shares for certain corporate purposes without delivering the same benefits as a permanent reduction in outstanding shares.
The government's wider reform agenda also seeks to strengthen shareholder protection and improve corporate accountability.
However, implementation has been uneven. Financial institutions have generally shown greater willingness to introduce shareholder-friendly measures, while several large conglomerate affiliates have been slower to respond.
This difference suggests that introducing new regulations is only one part of the challenge. Changing established corporate practices will require sustained pressure and effective enforcement.
Activist Investors Increase Their Involvement
Activist investment funds are also becoming more involved in South Korea's corporate reform movement.
Life Asset Management has requested an independent review of Samsung's decision to postpone the allocation of its remaining shareholder return funds. The review is intended to examine whether the delay serves shareholders' interests and whether potential conflicts of interest have been appropriately addressed.
Meanwhile, Palliser Capital has called for Samsung and Hyundai Motor to consider preferred-share buybacks and cancellations as part of their shareholder return strategies.
Such campaigns demonstrate how institutional investors are increasingly using their influence to challenge corporate decisions rather than simply buying or selling shares.
For companies, this creates additional pressure to explain their strategies and demonstrate that capital is being deployed efficiently.
What the Reforms Could Mean for Investors
South Korea's corporate governance changes could have significant implications for its financial markets over the coming years.
Companies that improve transparency, strengthen board independence and introduce consistent shareholder return policies may become more attractive to international investment funds.
Financial stocks have already shown encouraging performance. During 2026, South Korean bank shares gained approximately 15.9%, while insurance stocks advanced 48%. In contrast, shipbuilding and machinery shares declined 42% and 30%, respectively.
These differences highlight how sector performance can vary even within a market undergoing broader structural changes.
However, investors should not assume that every company will benefit equally from governance reforms. Business fundamentals, earnings growth, industry conditions and individual corporate strategies will continue to influence valuations.
A Critical Turning Point for South Korea's Stock Market
South Korea's efforts to eliminate the Korea Discount are entering an important implementation phase. Government policies have created expectations, but international investors increasingly want measurable action from the country's largest companies.
Samsung's shareholder return decisions, SK Hynix's capital allocation strategy and the response of other major conglomerates will be important indicators of whether the reform movement gains momentum.
Ultimately, South Korea's ability to attract long-term international capital will depend on building confidence in its corporate institutions. Strong earnings and technological leadership can support economic growth, but investors also need transparent governance, responsible capital allocation and meaningful shareholder protection.
The coming months could therefore prove important in determining whether South Korea can turn its corporate reform ambitions into lasting improvements in market confidence and company valuations.
