90% of Companies with Stock Splits Last Year Yielded High Dividends

[Asia Economy Reporter Koh Hyung-kwang] Among the 10 listed companies that underwent a stock split last year, the stock prices of 8 to 9 companies declined. Although the decision was mostly made to split shares into smaller units to increase liquidity and boost stock prices, contrary to expectations, the stock prices retreated.

On the 26th, financial information provider FnGuide analyzed the stock price trends of 23 stocks that pursued stock splits last year. Only 3 stocks (13%) showed an increase in stock price six months after the closing price on the first trading day following the stock split. The remaining 20 stocks (87%) experienced declines ranging from 6% to as much as 86%.

Lotte Chilsung, once called a "king stock" with prices fluctuating between 1.5 million and 1.7 million KRW, lowered its par value from 5,000 KRW to 500 KRW in May last year and resumed trading, but its stock price fell 17.8% within six months. Pulmuone, which also reduced its par value to one-tenth, saw its stock price drop 29.4% from 13,150 KRW to 9,280 KRW over six months after the split.

Besides these stocks, other companies with market capitalizations over 100 billion KRW such as Jangwon Tech (-40.9%), Sambu Construction (-29.3%), IA (-22.1%), Andy Force (-14.1%), and Cuckoo Homesys (-9.6%) also failed to gain momentum after their stock splits. Electronic materials manufacturer SM Materials (formerly Nepes New Materials at the time of the split) showed the largest decline (-86.1%) among last year's stock split stocks amid growing concerns over continued deficits.

Only three stocks saw price increases after the stock split: Karis Gukbo (50.5%), Hwacheon Machinery (44.5%), and Clean Country (8.9%). Even Hwacheon Machinery’s surge was not due to improved business performance but rather because it was mentioned as a "Cho Kuk theme stock." Although stock splits were pursued with the expectation that expanding the number of tradable shares would activate trading and raise stock prices, most of these hopes were disappointed.

A stock split refers to increasing the total number of issued shares by dividing the par value of existing shares by a certain ratio without changing the paid-in capital. It is generally conducted when stock prices are high, causing sluggish trading or difficulties in issuing new shares. Lowering the price per share is expected to stimulate more active trading.

However, experts commonly agree that stock splits do not guarantee unconditional stock price increases. In particular, while there is a possibility of price increases in the long term, there is no effect in the short term, and whether the company is fundamentally sound is a more critical factor. Hwang Se-woon, a research fellow at the Capital Market Institute, said, "Stock splits do not suddenly improve a company’s management or financial condition. Some liquidity improvement effects can be expected, but even this is unlikely to be a meaningful factor for stock price increases."