Korean Listed Companies' Struggles Grow Fastest Among Developed Nations

The speed at which financially struggling 'marginal companies' among those listed on the domestic stock market is increasing has been the fastest among major developed countries. According to an analysis by the Korea Economic Research Institute (KERI), 27.6% of Korean listed companies were in a marginal company state as of last year, an increase of 15.8 percentage points from 11.8% in 2017.

A marginal company is defined as one where the inability to cover interest expenses with pre-tax profit (EBIT), meaning an interest coverage ratio below 1, has persisted for three consecutive years. Last year, the proportion of marginal companies among Korean listed firms, at 27.6%, was the second highest among surveyed countries, following the U.S. (30.7%). The rate of increase was 6.3 percentage points higher than that of the U.S. (+9.5%p), marking the highest growth among the surveyed nations.

By market, the vulnerability of the KOSDAQ market was pronounced. Last year, the proportion of marginal companies on KOSDAQ was 32.6%, approximately twice as high as on KOSPI (16.7%). The increase since 2017 was also significant, rising by 19.5 percentage points, about 2.7 times larger than the KOSPI's increase (+7.1%p).

By industry, 'Arts, Sports, and Recreation Services' had the highest proportion of marginal companies at 60.0%. In 'Professional, Scientific, and Technical Services,' the proportion rose by 30.0 percentage points, from 6.8% in 2017 to 36.8% last year.