A night view of Seoul’s Yeouido financial district, lined with major financial institutions, with the National Assembly building visible in the background. (Yonhap)
SEOUL, Nov. 12 (Korea Bizwire) — A majority of South Korea’s publicly listed companies that hold treasury shares oppose a proposed amendment to the Commercial Act that would make share cancellations mandatory, according to a survey released Wednesday by the Korea Chamber of Commerce and Industry (KCCI).
The proposal, now under discussion at the National Assembly, would require firms to cancel a portion of their repurchased shares instead of holding them for strategic use.
The survey found that 62.5 percent of 104 listed companies holding more than 10 percent of their own stock were against the measure, while 22.8 percent took a neutral stance and only 14.7 percent expressed support.
Companies opposing the plan cited several concerns: limits on using treasury shares for restructuring or other management strategies (29.8 percent), weakened defenses against hostile takeovers (27.4 percent), reduced incentive to repurchase shares, thereby depressing stock prices (15.9 percent), and an uncompetitive environment compared with foreign practices (12 percent).
More than 60 percent of respondents said they have no plans to buy back shares in the future, suggesting the mandatory cancellation rule could significantly dampen buyback activity. Among companies with plans or under consideration, over half said they would scale down purchases.
The exterior view of the Korea Chamber of Commerce and Industry building. (Image provided by KCCI)
The KCCI warned that such a policy could undermine efforts to stimulate Korea’s capital markets. Analysis of prior research showed that companies’ share prices typically outperform the market by 1 to 3.8 percentage points in the five days following a buyback, and by up to 47.9 percentage points over a one-year period, indicating a sustained positive impact on valuations.
“Focusing solely on short-term gains from share cancellations could erode the long-term stabilizing effect of regular buybacks,” said Shin Hyun-han, a professor at Yonsei University’s School of Business.
Nearly 80 percent of surveyed firms supported an alternative measure—ensuring fair and transparent procedures for disposing of treasury shares—rather than enforcing mandatory cancellations.
The KCCI also noted that few major economies impose such restrictions. Among the top 30 companies by market capitalization in the United States, Japan, and the United Kingdom, 64.4 percent hold treasury shares, with average holdings higher than in Korea.
“Mandatory share cancellations risk constraining corporate flexibility and weakening the capital market,” said Kang Suk-gu, head of research at the KCCI. “Improving fairness in disposal practices could achieve the intended reform goals without damaging corporate vitality.”
M. H. Lee (mhlee@koreabizwire.com)
