time expense but an ongoing cost of doing business as a public company.<sup>41</sup> Sometimes there is simply a cultural reluctance to disclose information that may appear to be personal in nature.<sup>42</sup> In some markets, it may in fact be dangerous – personally dangerous – to disclose information about yourself and your company. Of course, none of these reasons is necessarily exclusive and there may be considerable overlap.<sup>43</sup> Many impediments to listing can be mitigated or removed altogether through education and training initiatives and by legal and regulatory reform. But alleviation of perceived obstacles is not of itself capable of bringing public or private sector companies to list on the exchange because the obstacles, while serious, are in fact incidental to the key incentives motivating companies to list. Recent experience in Korea provides evidence of this.

In 2005, the Korean government conducted a survey on costs incurred by public companies, with a view to investigating causes of sluggish activity in the stock market.<sup>44</sup> The survey found that 40 percent of listed companies do not see great advantages in being public. For example, 19.1 percent of listed companies consider that the costs are higher than the benefits of remaining public, and 20.9 percent see no net benefits.

Most listed companies in Korea also raised serious concerns over everincreasing compliance costs. More specifically, they indicated that the most burdensome regulations are: (i) disclosure rules (60 percent), (ii) litigation risks (50 percent), and (iii) requirements for listing maintenance (42 percent). The total compliance costs in Korea are estimated to be far lower than those in the US; however, the relative amount to the market capitalization and GDP is comparable. As expected, since the compliance costs are a fixed cost, smaller companies tend to be affected more negatively as the regulatory burdens increase.<sup>45</sup>

> 41 One way to overcome the disincentive to list caused by the increased disclosure and governance requirements is to impose those requirements on all companies – not just listed companies – above a certain size, and a number of countries, including, for example, Sri Lanka and Tunisia, have done so.  However, it is important to ensure that such requirements are then enforced.

42 The different approaches taken by developed markets to requiring disclosure of executive compensation amply demonstrates these divergent cultural sensitivities.

43 A reluctance to disclose is not unique to emerging markets. In the United States, for example, when the SEC proposed to increase disclosure for companies traded on Nasdaq’s over-the-counter Bulletin Board, a significant number of companies delisted, rather than take on the new disclosure burden. Bushee and Leuz, 2004 44 The Korea Securities Research Institute, “Policy Recommendations for Reducing Compliance Costs of Public Companies,” June 2005. The data for listed companies were collected from 201 companies (113 in KSE and 88 in KOSDAQ) out of 1,566. In addition, focused interviews with senior mangers from 20 companies in each market were carried out to complement the survey and to estimate the absolute amount of compliance costs.

45 To a certain extent at least, this is expected: those companies that do not list are most likely to complain about the burdens, and some of those companies might in fact not be able to list should they desire to do so.

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