The Importance of Company History in Investment Decisions
In the business reports, semi-annual reports, and quarterly reports published by listed companies, there is a section labeled Company History. This section outlines significant events in the companys history since its establishment, serving as a concise historical overview. While most investors tend to overlook this part, seasoned investors often take the time to review it, especially when considering investments in unfamiliar companies or industries.
One crucial aspect that experts emphasize looking for in the company history is the changes in major shareholders. For companies with lower market capitalization or revenue, the likelihood of a financially unstable major shareholder taking control during mergers and acquisitions (M&A) is higher. Once a company aligns with an unsuitable major shareholder, it can face repeated M&A processes, leading to a decline in stock prices, and in severe cases, a risk of delisting.
For instance, lets examine the history of Dragonfly, which faced delisting on the KOSDAQ market due to the refusal of the auditing firm to provide an audit opinion, resulting in its designation as a management issue. This company disclosed that it experienced changes in its major shareholder three times: in November 2020, April 2022, and March 2023. The rapid succession of major shareholder changes, occurring twice within a year between 2022 and 2023, raised concerns about the companys ability to conduct normal operations.
Frequent changes in major shareholders are a significant red flag indicating potential deterioration of the company. Among the 54 listed companies newly designated as management issues this year, 28 had disclosed changes in major shareholders over the past three years, representing a rate of 51.9%.
Regulatory authorities regularly compile relevant data and issue warnings regarding these trends. A 2019 analysis by the Financial Supervisory Service of 394 listed companies that underwent changes in major shareholders between 2013 and 2015 highlighted this concerning pattern. Investors should pay close attention to the company history section to better understand the stability and management quality of the companies they are considering for investment.
One crucial aspect that experts emphasize looking for in the company history is the changes in major shareholders. For companies with lower market capitalization or revenue, the likelihood of a financially unstable major shareholder taking control during mergers and acquisitions (M&A) is higher. Once a company aligns with an unsuitable major shareholder, it can face repeated M&A processes, leading to a decline in stock prices, and in severe cases, a risk of delisting.
For instance, lets examine the history of Dragonfly, which faced delisting on the KOSDAQ market due to the refusal of the auditing firm to provide an audit opinion, resulting in its designation as a management issue. This company disclosed that it experienced changes in its major shareholder three times: in November 2020, April 2022, and March 2023. The rapid succession of major shareholder changes, occurring twice within a year between 2022 and 2023, raised concerns about the companys ability to conduct normal operations.
Frequent changes in major shareholders are a significant red flag indicating potential deterioration of the company. Among the 54 listed companies newly designated as management issues this year, 28 had disclosed changes in major shareholders over the past three years, representing a rate of 51.9%.
Regulatory authorities regularly compile relevant data and issue warnings regarding these trends. A 2019 analysis by the Financial Supervisory Service of 394 listed companies that underwent changes in major shareholders between 2013 and 2015 highlighted this concerning pattern. Investors should pay close attention to the company history section to better understand the stability and management quality of the companies they are considering for investment.
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