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보고서 1
Sustainability Reporting Based on Materiality and Price Informativeness [23-01]
Senior Research Fellow Lee, Inhyung and others / Jan. 05, 2023
That corporate sustainability information disclosure enhances enterprise value discovery is a basic premise underlying sustainability disclosure discussions. If this is not the case, sustainability reporting efforts can be of little value to both the corporate and the investors. This aspect of sustainability reporting should be taken into consideration when regulatory efforts are undertaken to mandate disclosure. This paper aims to ascertain empirically whether disclosure of material sustainability information increases the price informativeness of the firm’s stock price to provide evidence that can be considered in the regulatory design.

The IFRS S1 General Requirements for Disclosure of Sustainability emphasizes the disclosure of material information that has relevance to the enterprise value. When there are no disclosure standards specified by the IFRS S1, companies are to be guided by the SASB industry-specific disclosure standards. Since sustainability issues related to the environment and social agenda have a different level of relevance for each industry and firm, disclosure standards are uniquely provided for 77 different industries that have been identified by the SASB.

For each disclosure standard, firms are to decide which disclosure topics and related metrics are material and report them accordingly. So any sustainability information disclosed in this manner is firm-specific and the information content should be reflected in the idiosyncratic firm price movement. This hypothesis is put to test by utilizing Bloomberg’s ESG Disclosure Score database. Bloomberg provides SASB to Bloomberg Field Mapping service, which is a tool that provides a Bloomberg mapping of the material ESG metrics and data points aligned to the SASB Standards ESG disclosure topics based on SASB industry materiality.
Price informativeness is defined as the part of a price movement that is purely attributable to the firm-specific information content. This variable is explained by the material disclosure level of a firm after taking into consideration other independent variables that are deemed to affect the price informativeness through separate channels. Control variables such as firm size, business characteristics, institutional investors’ ownership, accounting information, etc., are employed and the year and firm fixed effects are also applied.

Results indicate that material information enhances price informativeness, and other control variables also show relational signs that are theoretically correct and empirically supported in the literature. Different lags and leads are employed to check the robustness of the results.

Furthermore, firms in a group that show a higher level of profit uncertainty with a lower growth prospect show significant price information content of material information than the group with a lower level of uncertainty and higher growth prospect. In a similar manner, the group of firms that engage in less conservative accounting practices also show higher price informativeness than the groups that do otherwise.
보고서 1
The Usefulness of Material Disclosure on ESG Activities to Improve the Value Relevance [22-04]
Research Fellow Lee, Sang Ho and others / Dec. 16, 2022
As a member of the social community, if a company puts effort into sustainable activities and creates environmentally and socially meaningful outcomes, it in itself solidifies the going concern assumption. Therefore, it is reasonable to assume that ESG performance and corporate value would have a meaningful association. However, a number of empirical literature over a long period of time have presented mixed conclusions about the relationship between ESG performance and a firm's financial performance or corporate value(Waddock & Graves, 1997; Zhao & Murrell, 2016). In particular, in the case of Korea, it is not even clear or robust whether investors utilize a company's ESG performance in making investment decisions as well as purchase decisions in the product and service market(Kim et al., 2022).

This report intends to reconcile the inconsistent discussions on the relationship between existing ESG activities and corporate value, and to re-visit the relationship between the two in terms of financial materiality.
We examined the relationship between ESG activities and corporate value of Korean listed companies and suggest that the main reason why existing studies did not find consistent empirical evidence is that overall ESG performance improvement activities, on average, possibly deviated from the main channels in creating corporate value. Companies that improved their ESG performance by focusing on financially material activities not only achieved long-term abnormal returns in the stock market but also persistently maintained high ESG performance.
The results imply that financially material ESG activities are deeply related to the long-term value creation of a company, and ultimately, it would be reflected through security prices. However, in the short term, it appears that market participants underestimate such value relevance rather than fully understand it in a timely manner.
Results of this report have great implications not only for managers who want to increase their corporate value by improving ESG performance but also for policymakers who want to alleviate the chronic discount phenomenon in the Korean capital market. First, companies should focus on financially material ESG activities. ESG activities that do not drive long-term financial performance are not only systematically suppressed under the current legal system that intends to protect the interests of shareholders, but it is also difficult to attract sustained support from key stakeholders.

Second, since the participants in the capital market may not be able to understand the value relevance of ESG activities in a timely manner, disclosure should be able to clearly express the financial significance of ESG activities. Although the performance of ESG activities with high financial materiality will be relatively more comparable than non-financial performance, investors still underreact in the short term, which raises the need to improve the market's valuation mechanism. The ESG information disclosure, which is scheduled to become mandatory in 2025, needs to incorporate an identification and reporting system focusing on important risk and opportunity factors that affect corporate value which is necessary to promote a virtuous cycle effect that is a source of financing.
보고서 1
Taxation of Virtual Asset Income in Korea: Problems and Solutions [22-23]
Senior Research Fellow Kim, Kab Lae / Nov. 30, 2022
The 2022 amendment to the Income Tax Act aimed at delaying virtual asset taxation until January 1, 2025 is currently pending in the National Assembly. The Korean government has set forth the principle of “establishing legal system before levying a tax” as the ground for deferring virtual asset taxation. The principle gives priority to making a fair and reasonable virtual asset taxation system as well as setting rules and regulations on the crypto market. This article has found that in terms of virtual asset taxation reform, Korea is outstripped by major global economies. Against this backdrop, this article intends to examine legislative challenges regarding the tax treatment and classification of gains from virtual asset transactions as other income category and the virtual asset-specific tax regime, and to present desirable policy responses.      

As for taxation on income generated from transactions of virtual assets under the Income Tax Act, a convenient tax system is needed for taxpayers to budget and plan. What is also needed is to encourage long-term investments in high-quality virtual assets and adhere to the principle of levying a tax on the “net” income. To this end, investors should be allowed to offset capital gains and losses of virtual assets and investment properties and to carry forward the net loss for subsequent years. Specific rules on crypto taxation and authoritative interpretations regarding what constitutes income from crypto lending are almost nonexistent. For taxation on income from crypto lending and DeFi, the tax authority should conduct policy research. They also need to notify market participants of a specific tax policy before specific rules on virtual asset taxation comes into force. 

For the advancement of Korea’s virtual asset tax regime, it is desirable to establish an efficient virtual asset taxation system and launch an internationally competitive tax service platform for virtual assets. To achieve this goal, Korea’s tax authority should have sufficient discussions to present comprehensive and detailed guidelines for virtual asset taxation.