"Increase in Trading to Boost Stock Price?"... 87% of Companies with Stock Splits See Stock Prices Decline

[Asia Economy Reporter Koh Hyung-kwang] Among the 10 listed companies that carried out stock splits last year, the stock prices of 8 to 9 companies declined. Most of these decisions were made to boost stock prices by increasing liquidity through splitting shares into smaller units, but contrary to expectations, the stock prices retreated.

On the 16th, financial information firm FnGuide analyzed the stock price trends of 23 stocks that pursued stock splits last year. It found that only 3 stocks (13%) saw their prices rise six months after the closing price on the first trading day post-split. The remaining 20 stocks (87%) experienced declines ranging from 6% to as much as 86%.

Lotte Chilsung, once called a "royal stock" with prices fluctuating between 1.5 million and 1.7 million KRW, lowered its par value from 5,000 KRW to 500 KRW in May last year and resumed trading, but its stock price fell 17.8% within six months. Pulmuone, which also reduced its par value by one-tenth, saw its stock price drop 29.4%, from 13,150 KRW to 9,280 KRW, over six months after the split.

Besides these stocks, companies with market capitalizations over 100 billion KRW such as Jangwon Tech (-40.9%), Sambu Construction (-29.3%), IA (-22.1%), Andy Force (-14.1%), and Cuckoo Homesys (-9.6%) also failed to gain momentum after their stock splits. Electronic materials manufacturer SM Materials (formerly Nepes New Materials at the time of the split) showed the largest decline (-86.1%) among last year’s stock split stocks amid growing concerns over continued losses.

Only three stocks saw price increases after the split: Caris Kukbo (50.5%), Hwacheon Machinery (44.5%), and Clean Nara (8.9%). Even Hwacheon Machinery’s surge was less due to improved business performance and more because it was mentioned as a "Cho Kuk theme stock." Although stock splits were pursued with the expectation that increasing the number of tradable shares would activate trading and raise stock prices, most of these hopes were dashed.

A stock split refers to increasing the total number of issued shares by dividing the par value of existing shares at a certain ratio without changing the paid-in capital. It is generally conducted when stock prices are high, causing sluggish trading or difficulties in issuing new shares. Lowering the price per share is expected to stimulate more active trading.

However, experts commonly agree that stock splits do not guarantee unconditional stock price increases. In particular, while there is a possibility of price rises in the long term, there is no short-term effect, and whether the company is fundamentally sound is a more critical factor. Hwang Se-woon, a researcher at the Korea Capital Market Institute, said, "Stock splits do not suddenly improve a company’s management or financial condition. Some liquidity improvement can be expected, but even this is unlikely to be a significant factor for meaningful stock price increases."

This content was produced with the assistance of AI translation services.