Good Timing? Stock Repurchases Followed by Reissues in Korea

Abstract: We examine an unusual sequence of stock transactions conducted by corporations in Korea. Firms conduct an open market stock repurchase followed by a stock reissue, which effectively reverses the repurchase. These transactions are very profitable to the firm. Our results support two hypotheses for why firms execute this sequence: some firms transfer wealth to the controlling shareholder, while other firms raise needed cash, if in the opinion of management, the stock price is over valued. The market response to a reissue is essentially the mirror image of the response to a repurchase. However, the market does not penalize very harshly reissues that appear to be wealth transfers