Korea Exchange (KRX) CEO Jeong Eun-bo speaks during a press conference on the goverment's Corporate Value-up Program at the KRX office in Seoul, Friday. Courtsesy of KRX

The Korea Exchange (KRX) will toughen rules in order to expel "zombie" companies from the local stock market, as part of its efforts to enhance the government's Corporate Value-up Program, KRX CEO Jeong Eun-bo said.

The term zombie companies refers to insolvent firms that are unable to service their debts with profits but still remain in business. They are in a virtual state of bankruptcy and undermine investors' confidence in local bourses.

Jeong also said the KRX will come up with a set of incentives that it can offer as the country's sole bourse operator to encourage listed firms to improve their corporate governance voluntarily, a key objective of the Corporate Value-up Program aimed at boosting the stock market.

These measures were part of a four-track strategy announced by Jeong during a press conference, Friday, on the occasion of the 100 days since he took office in February.

The four strategies center on full-pledged support for participating companies of the Corporate Value-up Program, expanded investment opportunities in a fair and transparent manner, exploration of new growth engines for the capital market and more open communication with investors from here and abroad.

"I am afraid we have more zombie companies than those in the advanced economies with regard to GDP size, and under the circumstances, investors will helplessly put their money into those firms unless corresponding countermeasures are taken against them," Jeong said during the press conference at the KRX office in Seoul.

He pointed out that about 2,600 zombie firms are listed on the benchmark KOSPI and secondary-bourse Kosdaq, whereas there are 5,500 on New York Stock Exchange (NYSE) and Nasdaq in the United States.

"The GDP of the U.S. is about 15 times larger than Korea's, suggesting a more serious nature concerning zombie companies in the domestic stock market," he said.

As for a solution, he proposed a shortened grace period — from four years to two years — for the zombie companies to improve their business condition in order to avoid being removed from the KOSPI.

Concerning the Kosdaq, the KRX board will give the targeted companies two sets of reviews down from the current three, over whether they can stay or be kicked out of the market.

"I believe this policy will be helpful for other listed companies that are financially healthy," he said, adding the KRX will have an outside party to conduct a feasibility study if necessary.

He did not elaborate on planned incentives for companies participating in the Corporate Value-up Program.

Instead, he explained that the incentives are intended to "increase both market pressure and peer pressure and induce the companies to undergo reform."

By market pressure, he meant an atmosphere where investors freely suggest and even make demands on the management of a company that they are invested in.

Peer pressure refers to an atmosphere where many listed companies are voluntarily improving their management so that others also do so in order to remain attractive in the market.