Regulations Hamper Corporate Investment
South Korean companies had piled up more than 256 trillion won (US$227.15 billion) of cash in the past seven years. Some point out that the companies are reluctant to make an investment in their facilities and research and development (R&D). But these companies claim that they cannot make an investment due to various regulations even if they want to.
According to the Bank of Korea data on domestic companies’ net profits, cash and cashable assets and short-term investment assets, the total net profit of South Korean companies grew 79.7 percent from 75.07 trillion won (US$66.61 billion) in 2009 to 136.13 trillion won (US$120.79 billion) in 2016. Their cashable assets also rose 76 percent from 338 trillion won (US$299.91 billion) to 594.78 trillion won (US$527.75 billion) over the same period.
The central bank submitted the data to the ruling Democratic Party lawmaker Kim Doo-kwan on the Finance and Strategy Committee of the National Assembly.
The cashable assets of South Korean companies shoot up since the inauguration of the Park Geun-hye administration. Their net profits stood at 68.97 trillion won (US$61.2 billion) in 2013, the first year of inauguration of the Park Geun-hye administration, holding 64.7 percent of them, or 44.62 trillion won (US$39.59 billion), in cashable assets. In 2015, they piled up 75.43 trillion won (US$66.93 billion), 63 percent of 119.68 trillion won (US$106.19 billion) of the total net profits, in cashable assets.
During the four years of Park Geun-hye's presidency, domestic companies had 171.67 trillion won (US$152.32 billion[yy1] ), 41.6 percent of 412.63 trillion won (US$366.13 billion) of the total net profits, in cashable assets. Under the Lee Myung-bak administration between 2010 and 2012, the ratio of net profit to encashment of domestic firms stood at some 10 percent. However, the figure soared to some 50 to 60 percent under the Park administration.
Rep. Kim said, “Under the former Park Geun-hye administration, the government tried to encourage more dividends, investments and wage increases through a tax system that additionally imposed tax on some of the corporate money not used for investments, wage increases or dividends but the amount of companies’ cashable assets grew further.”
Experts said, “The government should encourage companies to make bold investment in the future by easing regulations. Based on this, it is possible to create a virtuous circle that leads to an increase in companies’ investment, work, jobs and profits.”