Overseas Investors Want More Dividends

A CEO of a large company in which foreigners hold over a 60 percent stake recently consulted with a foreign investment fund firm.

The investment fund requested that in order to maximize shareholder profits, the company’s cash dividends and retirement stock buy-backs must be increased.

The CEO replied, “We have been utilizing over 40 percent of our annual net profit in cash dividends and stock repurchases every year. Considering the facility investment to be made next year, including automating the plant, we cannot increase the dividend any further.”

Foreign investments account for over 40 percent of the domestic stock market, and through cash dividends and retirements after stock buy-backs, shareholders are acquiring even more profits.

Economic experts acknowledge the fact that the U.S. management method that holds companies accountable to shareholders has contributed to enhancing the transparency of Korean companies. However, they worry that if this trend carries on too far, it may possibly lead to a slowdown in future facility investments and a weakening in competitiveness.

According to Korea Exchange yesterday, the cash dividends of companies ranking in the top 20 in market capitalization (number of stocks × stock price) highly increased from 3.8 trillion won in 2002 to 7.0 trillion in 2004.

A high official from group B said, “High cash dividends and corporate stock buy-backs were inevitable to appease foreign shareholders who hold high stakes in the company.”

In particular, when the efforts to block management takeovers reached to a peak among domestic companies in 2003, the dividends and buy-backs of the entire listed companies amounted to a total 17 trillion won, reaching 80 percent of facility investments (21.2 trillion won).

Do-Young Kim Im-Sook Ha nirvana1@donga.com artemes@donga.com