Yi Whan-woo is a Korea Times journalist primarily covering finance. He writes in-depth articles on macroeconomy and financial markets and previously covered sports, politics, diplomacy and inter-Korean affairs, among others. Feel free to contact him at yistory@koreatimes.co.kr.
Over 60% of firms oppose plan for mandatory retirement of treasury stocks
The Korea Chamber of Commerce & Industry building (KCCI) in central Seoul / Korea Times file
By Yi Whan-woo
The business community is raising concerns over the government’s push to enforce the compulsory cancellation of treasury stocks, with more than 60 percent of companies opposing the plan in a survey released Wednesday.
The survey, conducted by the Korea Chamber of Commerce & Industry, found that 62.5 percent of the 104 listed firms polled opposed the government’s proposal to mandate the retirement of shares repurchased from shareholders.
The 104 firms included in the poll held at least 10 percent of their own shares.
Opposition was much greater than the 22.8 percent who remained neutral and the 14.7 percent who supported the measure.
The government, backed by the ruling Democratic Party of Korea, is moving to pass a third amendment to the Commercial Act and aims to have the bill approved by the end of this month.
The proposed reform would require listed companies to retire their repurchased shares, in line with President Lee Jae Myung’s push to bolster the stock market and strengthen shareholder value.
Retirement of treasury stocks would reduce the number of outstanding shares, potentially improving earnings per share, return on equity and other financial metrics, thereby benefiting investors.
While firms generally support the goal of enhancing shareholder value, they are raising concerns that the policy could conflict with managerial interests.
Treasury stocks are a strategic tool for maintaining managerial control, and the proposed amendments, an intensified version of the first two measures, would require the cancellation of not only newly acquired shares but also those already held.
Under these conditions, 67.6 percent opposed the measure.
Among the concerns, 29.8 percent said mandatory retirement could restrict strategic uses like business restructuring, while 27.4 percent warned it might weaken managerial control.
Another 15.9 percent noted that it could reduce incentives to support stock prices.
“Simply put, the parties involved should aim to strengthen shareholder value while ensuring that this does not undermine stock price support or negatively impact shareholder interests,” Shin Il-soon, a professor of economics at Inha University, said.