There have been studies on the positive or negative aspects of the cause and effect of foreign listing and cross-listing in the existing studies. Those studies, however, have focusedonly on the listing on the leading foreign exchanges, and the listing of foreign companies on the Korea Exchange has not been the major subject of the studies.
Since a Chinese company 3NOD Digital Group first listed on the Korean market in 2007, the number of foreign companies listed on the Korean market as of April 2010 is 14, of which 12 are Chinese companies. And, most of the foreign companies preparing to list on the Korea Exchange are the companies from China. Therefore, in this study, in order to examine in detail the listing on the Korea Exchange by foreign companies, which was not studied before, we focus on the listing of Chinese companies in its analysis. By doing so, we wouldlike to lay a ground for the future studies on the listing of the foreign companies on the Korea Exchange through identifying the motivation, problems, and their solutions.
In this study, we analyzed the current status and characteristics of the listing of the foreign companies on the Korean market. The most common methods used by the foreign companies, especially by most of Chinese companies, was utilizing the back-door listing of the original share through establishing a holding company in Hong Kong or Cayman Islands where the legal system has less conflict with Korean laws. And the companies from the United States and Japanare seeking a direct listing without setting up the holding company.
When a foreign company tries to list on the Korean market, there exists a possibility of problems arising due to difference of legal systemor accounting methods, and thus, many facilitators are necessary in order to overcome these problems. Even with taking the risk of these, a listing rush toward the Korean market is increasing. The factors affecting the decision by the foreign companies to list on the Korean market are as follow:
First, a relatively short listing period of the Korean market, compared to other markets. Second, the Korean market acknowledged as an advanced capital market. Third, the Korean market's ample liquidity. Fourth, a low listing cost. Fifth, an attractive valuation. Sixth, the KRX's positive attitude toward the drawing of the foreign companies, Seventh, the similarity of the industry, culture and geography.
However, in order to invigorate the listing of the foreigncompanies on the Korea Exchange, there still remain a lot of issues to be addressed. First, the transparency in accounting and corporate governance of the Chinese companies is low compared to the Korean companies. Second, as a geographical limitation, the fact of being foreign company is acted as barrier and limitation for domestic investors to obtain the company information. Third, the "China discount" is an issue. Fourth, the fact that it is hard to notice blue chips having international recognition in the market drags on the globalization of the Korean stock market. Fifth, as a drawback, the Chinese companies listed on the Korean market are concentrated mostly on the traditional industry.
In order to solve these problems, the following supplementary actions need to be taken. First of all, it is necessary for the Korean Exchange to tighten its listing examination. But, because this may make the Exchange difficult to attract foreign companies to the Korean market due to excessive regulation, it seems that an appropriate control is necessary. As for the low transparency of accounting and corporate governance of the foreign companies compared to the domestic companies, an endeavor to enhance the transparency through the on-site examination and additional confirmation is necessary.
Second, for the purpose of improving the transparency of the foreign companies, an effort to disclose the company information actively and clearly needs to be made. A continuous communication with the domestic investor should be invigorated, and a measure to increase services for the investors, such as regular IR, periodic reports from the securities firms, creating a website in Korean language, hiring a Korean speaking IR staff, etc., are in urgent need.
Finally, it seems that the general view of underestimating the Chinese companies by domestic investors is wrong. The Chinese industries are under rapid growth, and there are many industries that are declining in Korea are now in the growth stage in China. Therefore, it is advisable to evaluate a company taking into account various factors, such as its growth and profitability, and so on.