SEOUL (Reuters) -South Korea’s financial regulator on Monday announced reform proposals to nudge listed companies with low valuations to report plans to boost shareholder returns in an effort to reduce the “Korea discount” on stock prices.

South Korea is using Japan’s playbook to boost the value of its companies, analysts say, as its neighbour’s stock market surges to a record high.

Under the “Corporate Value-up Programme”, the government will encourage and support companies’ voluntary efforts to return more capital to shareholders and improve governance, South Korea’s Financial Services Commission (FSC) said.

Companies will be able to refer to a detailed guideline set for release by the government in the first half of this year for their reporting plans, the FSC said.

The FSC is also considering tax incentives – such as preferential treatment in tax policies – for companies that enhance their market value and increase shareholder returns.

The regulator will also introduce an index of firms with strong shareholder value.

Joining the government’s push, South Korea’s stock bourse said earlier this month it would establish a team dedicated to improving corporate governance while the national pension fund decided to invest in companies working to boost their value.

“We expect it could help resolve the problem of ‘Korea Discount'”, once these measures are effective, FSC said in a statement.

The benchmark index fell 1% on Monday, with losses led by automakers and banks which are often considered undervalued. These sectors had rallied hard recently ahead of the government’s reform proposal.

Prior to market opening, Finance Minister Choi Sang-mok said the government’s corporate reform plan would continue until the “Korea discount” is resolved.

The ‘Korea discount’ refers to a tendency for South Korean companies to have lower valuations than global peers due to factors such as low dividend payouts, and the dominance of opaque conglomerates known as chaebols.