Is a Stock Dividend a Stock Price Booster? ... The Effect Is 'Minimal'

Analysis of 13 KOSDAQ Companies Conducting Free Stock Splits from June
Many Stocks Fall Before Disclosure... "Need to Examine the Real Value of Companies"

The effect of stock dividends conducted to enhance shareholder value and boost stock prices has been found to be insufficient.

According to the Financial Supervisory Service's electronic disclosure system, since June, 13 KOSDAQ companies (excluding those without ex-rights dates and those conducting both paid and stock dividends simultaneously) have carried out stock dividends, including Experix, Tomato System, and Foursys.

Stock dividends refer to distributing shares to shareholders without receiving payment. They are implemented as a measure to boost stock prices or enhance shareholder value. When a stock dividend is issued, the number of circulating shares increases, leading to more active trading. Also, since capital surplus is converted into capital stock, it signals to the market that the financial structure is solid.

However, among the companies that conducted stock dividends, more experienced a decline in stock price compared to before the disclosure. Of the 13 companies, 7 saw their stock prices fall compared to before the stock dividend. For example, Experix, which announced a stock dividend on June 9, had a stock price of 12,575 KRW on June 8, the day before the announcement. After the announcement, the stock price hit the upper limit consecutively, rising to 25,550 KRW on June 27. However, the closing price on the 18th of this month was only 8,770 KRW.

The same applies to PIMS. PIMS decided on a stock dividend allocating 2 shares per 1 share on the 4th of last month. The stock price was 6,490 KRW the day before the stock dividend, but the closing price on the 18th was 4,400 KRW. This represents a 32.20% decline compared to before the stock dividend decision.

Even companies whose stock prices rose have seen significant declines from their peak prices. For example, Samki EV's stock price rose to 7,600 KRW intraday on the 1st. However, the closing price on the 18th was 5,310 KRW. This is a 43.82% increase compared to the closing price of 3,692 KRW the day before the stock dividend announcement, but a 30.13% drop from the peak price. Labgenomics also closed trading on the 18th at 5,450 KRW, down 16.15% from its intraday high of 6,500 KRW.

Stock prices of companies that decide on stock dividends often surge initially. This is due to a 'visual illusion' where the stock price appears cheap during the ex-rights period. The ex-rights date occurs before the new share allocation record date. It means the right to receive new shares disappears. At this time, even though the number of shares increases, the market capitalization remains the same, causing the stock price to drop.

The securities industry advises that since stock dividends are not an unconditional positive factor, investors should examine the corporate value. A financial investment industry official said, "Conducting stock dividends does not increase the intrinsic value of a company," and advised, "It is preferable to invest by looking at the company's inherent value, such as growth potential and performance."

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