KOREA CAPITAL MARKET INSTITUTE

Korea Capital Market Institute and the Korean Finance Association will co-host a symposium under the theme of Korea’s M&A market status and role. 

An M&A is a major event attracting huge attention due to its social and economic spillover. In addition, it is a crucial tool via which to boost economic efficiency by enabling businesses to reshape the business structure, advance into a new market, and create synergy. Another benefit is its role in providing investment exits for entrepreneurs and venture capitalists, facilitating the establishment of new businesses.However, agency theory points out that large shareholders may seek private profits and thus fail to work in the interest of a larger number of small shareholders. As Adam Smith, the father of modern economics, famously put it, “The directors of such companies, however, being the managers rather of other people’s money than of their own, it cannot well be expected, that they should watch over it with the same anxious vigilance with which the partners in a private copartnery frequently watch over their own.” In particular, M&As are prone to infringing minor shareholders’ interests due to the abuse of power by major shareholders. In some extreme cases, M&As are misused for dodging regulation by lowering the large shareholder’s stake or internal transactions, instead of promoting economic efficiency. Some large shareholders seek private interest during the M&A process, infringing the interest of minor shareholders. 

What’s important in those issues is how to maximize and fully capitalize on the positive functions of M&As, while minimizing and preventing the adverse effects. A careful look at the cases involving abusive practices and regulatory inefficiency would help design a sophisticated regulatory framework aiming to balance the dual goals of addressing major shareholders’ agency problem and promoting efficiency. A desirable framework will enable well-functioning M&A deals to proceed promptly and efficiently, while reining in M&As with conflicts of interest. The question is to sort out good deals from bad ones.

We expect this timely symposium to provide opportunities for heated discussions via which participants discover policy alternatives to help further develop Korea’s M&As.