[Click eStock] "Active 'Treasury Stock Cancellation' by Listed Companies... Foundation for Strengthening 'Director Duty of Diligence'"

Amid various reforms this year aimed at improving corporate governance, the 'share buyback cancellation' by listed companies has been active, and this trend is expected to lay the foundation for amendments to the Commercial Act that strengthen the 'duty of loyalty of directors' in the future.

On the 24th, Lee Kyung-yeon, a researcher at Daishin Securities, stated, "The background of share buyback cancellations includes strengthened disclosure obligations and demands for transparency. So far this year, the number of disclosures on share buyback cancellation decisions and the amount scheduled for cancellation are 78 and 7.1844 trillion KRW respectively, already surpassing last year's levels (64 cases, 4.9325 trillion KRW)."

Earlier, following the revision of the Enforcement Decree of the Capital Market Act, the improved share buyback system was implemented from the third quarter. Researcher Lee explained, "The core is the strengthening of disclosure obligations in the process of holding and disposing of treasury shares. Companies holding more than 5% of treasury shares must disclose the status and plans of treasury share holdings, and when acquiring or disposing of treasury shares, they must disclose detailed plans and the impact on stock value in detail," adding, "In particular, by applying the same regulations to trust acquisitions and direct acquisitions, regulatory arbitrage has been eliminated, making it difficult for companies to use treasury shares opaquely."

The improved system prevents listed companies from abusing treasury shares as a means of defending management rights and encourages their use as a rational means to enhance shareholder value. Researcher Lee noted, "The corporate tax credit benefits included in this year's tax law amendments will apply from next year, so companies that executed share buyback cancellations this year cannot receive tax credit benefits," but added, "However, due to strengthened disclosure regulations, instead of holding treasury shares for a long time, substantial shareholder returns are being made through cancellations."

He further stated, "The improvements in the share buyback system seen in the amendment of the Capital Market Act are developing in a direction that increases transparency in corporate governance and clarifies the responsibilities of directors. This movement is an important signal that listed companies are seeking changes to enhance shareholder value," and added, "It will serve as the foundation for future amendments to the Commercial Act that strengthen the 'duty of loyalty of directors.'"