As the stock market has swung sharply recently, there have been a series of cases in which the largest shareholders and executives of listed companies bought their own company's shares with personal funds. This is generally taken by shareholders as a sign of responsible management and confidence that the current share price is undervalued.
However, Oner and management buying company shares does not have the effect of reducing the number of shares outstanding and increasing share value, unlike when a company acquires and cancels its own shares. The fact that Oner and management bought the company's shares does not, by itself, have a positive impact on corporate earnings either. It simply means a symbolic decision that influences investment sentiment.
For a listed company's share price to keep rising, management ultimately needs to prove improved earnings and business performance, and tangible shareholder-return policies such as share buybacks with cancellation need to emerge.
According to the Financial Supervisory Service's electronic disclosure system on the 21st, cases in which a chair, CEO or president made an open-market purchase of 1 billion won or more of their own company's shares in their personal name numbered six in January this year, one in February, seven in March, six in April and five in May, staying in single digits. But the figure rose to 11 in June and 13 in July, posting double digits for two straight months.
Notably, Chey Tae-won, chair of SK Group, bought 3,620 shares of SK hynix(000660) on the 30th of last month at an average of 1,353,677 won per share in the open market. The total purchase amount is about 4.9 billion won. Kwak Dong-shin, chair of HANMI Semiconductor, also bought about 5 billion won worth of company shares last month. This month, Kim Yong-ju, chair of LigaChem Biosciences(141080), bought about 1.5 billion won, and Kim Young-hoon, CEO of Daesung Private Equity, each put in around 1 billion won to buy company shares.
Expanding the range to under 1 billion won adds more cases. Roh Tae-Moon, CEO of Samsung Electronics, bought about 700 million won worth of Samsung Electronics shares last month, and Lee Gyu-ho, chair of Kolon, put in about 200 million won. Kim Dong-chun, president of LG Chem, and Moon Hyuk-soo, CEO of LG Innotek, also each purchased around 100 million won worth of their company's shares.
An Oner's personal purchase is generally interpreted as a signal directly showing an insider's judgment of corporate value. Because management has a better grasp of company earnings and business prospects than retail investors, the very fact that they invested their own funds can spur investors' buying sentiment.
Kang So-hyun, head of the capital markets division at the Korea Capital Market Institute, said, "Managers have more information about the intrinsic value of corporations than outside investors," and added, "If an insider bought company shares in their personal name, it can be interpreted as a stronger signal that the corporation is undervalued."
However, it needs to be viewed separately from company-level share buybacks and cancellations. When a company cancels treasury shares it holds, the total number of shares outstanding declines, which can raise per-share value such as earnings per share (EPS) and book value per share (BPS).
By contrast, even if Oner buys shares with personal money, there is no change in the total number of shares outstanding. No new funds flow into corporations either, so there is no effect of improving earnings or the financial structure.
Kang said, "Because of information asymmetry between insiders and outside shareholders, investors are in a position with less information than internal managers," and added, "If the judgment that corporate value is undervalued is correct, insiders are more likely to continue holding the equity afterward; if not, the incentive to keep holding the equity may not be great."
This means that without changes in fundamentals such as improved earnings, new orders, or business growth, any improvement in investment sentiment from Oner's share purchases is unlikely to last long. In the end, not only whether and how much they bought but also whether subsequent management performance and continued equity holding follow should be examined together.
Lee Chang-min, a professor in the business administration department at Hanyang University, said, "Oner buying company shares with personal money can be seen positively in terms of giving confidence in the company's future," and added, "However, unlike when a company buys back and cancels treasury shares to reduce the float, the outcome can vary depending on how the market interprets the intent to buy."
He added, "For the share price to keep rising, corporate earnings basically need to support it."