Share buybacks used to strengthen management control instead of shareholder returns: report

A forum on reforms to the treasury share buyback is in session at the National Assembly on Yeouido, Seoul, Aug. 25. Korea Times file

By Lee Kyung-min

• Published Dec 2, 2025 4:05 PM KST

Nearly two-thirds of treasury shares of listed firms bought back under the stated goal of strengthening shareholder returns were actually used to bolster management control and employee compensation, a report by a business data provider showed Tuesday.

The findings coincide with expectations that the third amendment to Korea’s Commercial Code would pass before the year’s end.

The revision seeks to require companies to cancel newly acquired treasury shares within one year of acquisition. It also requires an approval from at least two-thirds of shareholders, in case a company seeks to change the reason for selling off those shares or use them for a different purpose than the original plan.

According to Leaders Index, about 20 percent of listed companies bought back their treasury shares every year over the past five years.

Of the total of 2,067 disclosed plans, over 93 percent, or 1,936, cited “enhancing shareholder value” as the goal.

Only 3 percent cited employee incentives as the reason, followed by one plan where both shareholder value enhancement and employee compensation were cited (2.5 percent).

According to 1,666 filings that detailed how the shares were actually used, 64 percent, or 1,066 cases, cited employee performance compensation, followed by securing funds (11.3 percent) and exchangeable bond issuance (10.3 percent).

“Many buybacks serve financial needs or secure friendly shareholders to protect management control, rather than enhancing shareholder value,” the report said. “In some companies, shares bought back were used for mergers and acquisitions, employee bonuses, or to retain friendly shareholders, all goals irrelevant to the original stated purpose.”

For example, Kosdaq-listed DreamCIS, a contract research organization, said in November 2021 that 200,000 shares bought back would be used for shareholder returns.

However, they were used to acquire other firms' shares, pay employee bonuses and for investment.

The report also found that among 880 firms that conducted stock buybacks in the past five years, only 35 percent, or 315, canceled any shares at all.