Bear Market, Share Buybacks Also Losing Their Effectiveness

Listed Companies Acquiring Treasury Shares
Short-Term Stock Price Boost Effect

[Asia Economy Reporter Junho Hwang] "For stock price stabilization and shareholder value enhancement..."

The number of listed companies acquiring treasury stocks has significantly increased due to stock price declines. Typically, treasury stock purchases are a positive factor for stock price increases, but with the continued bearish market, their effectiveness has been limited.

According to the Financial Supervisory Service's electronic disclosure system on the 5th, the number of treasury stock acquisition disclosures over the past year was 202, a 61.6% increase compared to 125 cases last year. Especially in the past month, as the stock market collapsed, more listed companies have moved to acquire treasury stocks. Twenty-four treasury stock acquisition decisions were submitted last month, the highest since 29 cases on June 29, when the market plunged due to the U.S.'s tightening stance.

Most listed companies have pursued treasury stock acquisitions primarily for stock price stabilization. When a company buys back its shares, the circulating supply decreases, which can raise expectations for stock price increases. Additionally, treasury stock purchases can positively impact stock prices due to increased dividends and rising expectations of business value, thus being considered a favorable factor.

However, investors should note that recent stock price trends of companies acquiring treasury stocks indicate limited effectiveness. After the treasury stock acquisition disclosures last month, Dow Technology (stock price on disclosure day -3.92%), Shinwon (0.31%), IA (3.65%), and Medytox (4.34%) showed stock price movements of approximately 3.49%, 3.69%, 5.54%, and -4.16% respectively over five days post-disclosure. This provided short-term upward momentum.

Yet, after completing the stock acquisitions, their prices mostly declined by 8.74%, -10.64%, -3.11%, and -7.88% respectively. While the sharp price drops were prevented amid the KOSPI's 10.76% decline last month, these moves did not serve as significant catalysts for price increases.

The primary reason for the diminished effect of treasury stock acquisitions is the bearish market. High-intensity tightening policies in the U.S. and South Korea, along with a strong dollar, dragged stock prices down regardless of the company or material. Additionally, the frequent treasury stock acquisitions by listed companies have diluted their impact. For example, Celltrion (3 times), Hanssem (4 times), Shinwon (4 times), Medytox (4 times), Miwon Commercial (4 times), and Seongho Electronics (6 times) have repeatedly bought back shares throughout the year.

A financial investment industry insider said, "If stock price management is done by companies buying their own shares rather than through significant business developments, it is difficult to view the long-term prospects of those stocks positively," adding, "there may be cases where circulating supply is reduced to block negative factors, which seems to have weakened the momentum for stock price support."