How it works
Article 461 of Korea's Commercial Act lets a board move capital and earned reserves into share capital and issue matching new shares to shareholders. A one-for-one issue doubles the share count, yet the company gains no money; numbers merely shift from the reserves line to the capital line.
Ex-rights and price
On the ex-rights date the price drops mechanically for the extra shares, leaving market cap unchanged. Still, Grinblatt, Masulis and Titman (1984) found US stock dividends and splits tended to lift prices at announcement—read as a signal of ample reserves and confidence, and a lower price improves trading liquidity.
Caution
In Korea, stocks often spike after a bonus-issue announcement and slump after ex-rights, attracting speculation. Unlike a rights offering, no cash comes in, and the larger share count shrinks EPS. The underlying value does not change.
FAQ
- Is a bonus issue good news?
- Firm value is unchanged, but it is often read as a sign of financial strength, so prices frequently rise short term.
- How is it different from a stock split?
- Both add shares, but a bonus issue capitalizes reserves while a split divides par value.
Sources reviewed: 2026-10-26
References
- 상법 제461조 (준비금의 자본전입).
- Grinblatt, M. S., Masulis, R. W., & Titman, S. (1984). The valuation effects of stock splits and stock dividends. Journal of Financial Economics, 13(4), 461–490.
- 한국거래소. (2024). 유가증권시장 공시규정.