An event study analysis of the impact of bonus share announcements on Nifty 100 and Nifty Midcap 100 companies

Pankaj Kumar Mahato

doi:10.55429/ijabf.v2i1.90

Authors

Pankaj Kumar Mahato Research Scholar, Magadh University, Bodh Gaya, Bihar, India

DOI:

https://doi.org/10.55429/ijabf.v2i1.90

Keywords:

Event Study, Bonus Share, Market model, Mid-cap, Large-cap

Abstract

This study examines how the large-cap and mid-cap firms listed on the National Stock Exchange responded to bonus share announcements between January 1, 2006, to September 30, 2022. The conventional event study approach has been utilized, along with the commonly used market model assessment of predicted returns to analyze 45 pure events during this period consisting of 20 events of large-cap and 25 events of midcap stocks. According to the analysis, stock values significantly changed around the time of occurrence. Announcements of stock dividends typically increase stock prices. The mean of average abnormal return around the event for Nifty Midcap 100 indexed companies (0.2087) is higher than that for Nifty 100 indexed companies (0.1446), although the difference is insignificant. The study also shows that the cumulative average abnormal return for Nifty Midcap 100 indexed companies (6.472) is higher than that for Nifty 100 indexed companies (4.483) during the event period.

Metrics

Metrics Loading ...

References

Ahsan, A. F. M. M., Chowdhury, M. A. R., & Sarkar, Md. A. H. (2013). An Empirical Study on Market Reaction around the Bonus Issues Announcements in Bangladesh. International Journal of Economics and Finance, 6(1). https://doi.org/10.5539/ijef.v6n1p82

Al-Yahyaee, K. H. (2014). Shareholder wealth effects of stock dividends in a unique environment. Journal of International Financial Markets, Institutions and Money, 28, 66–81. https://doi.org/10.1016/j.intfin.2013.10.003

Anderson, H., Cahan, S., & Rose, L. C. (2001). Stock Dividend Announcement Effects in an Imputation Tax Environment. Journal of Business Finance & Accounting, 28(5–6), 653–669. https://doi.org/10.1111/1468-5957.00388

Arulsulochana, Y. (2019). Impact of corporate action on share prices of indian stock market–an empirical investigation. International Journal of Recent Technology and Engineering, 7, 2277–3878.

Balachandran, B., Faff, R., & Tanner, S. (2004). Further evidence on the announcement effect of bonus shares in an imputation tax setting. Global Finance Journal, 15(2), 147–170. https://doi.org/10.1016/j.gfj.2004.02.001

Ball, R., Brown, P., & Finn, F. J. (1977). Share Capitalization Changes, Information, And the Australian Equity Market. Australian Journal of Management, 2(2), 105–125. https://doi.org/10.1177/031289627700200202

Barnes, M. L., & Ma, S. (2003). The Behavior of China’s Stock Prices in Response to the Proposal and Approval of Bonus Issues. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.458541

Basra, H., & Singla, R. (2020). The Information Content in Bonus Issue Announcements : Evidence from the Indian Corporate Sector. Indian Journal of Finance, 14(5–7), 18. https://doi.org/10.17010/ijf/2020/v14i5-7/153322

Bechmann, K. L., & Raaballe, J. (2005). The Differences Between Stock Splits and Stock Dividends-Evidence from Denmark.

Belgacem, A., Creti, A., Guesmi, K., & Lahiani, A. (2015). Volatility spillovers and macroeconomic announcements: evidence from crude oil markets. Applied Economics, 47(28), 2974–2984. https://doi.org/10.1080/00036846.2015.1011316

Brown, S. J., & Warner, J. B. (1980). Measuring security price performance. Journal of Financial Economics, 8(3), 205–258. https://doi.org/10.1016/0304-405X(80)90002-1

Brown, S. J., & Warner, J. B. (1985). Using daily stock returns. Journal of Financial Economics, 14(1), 3–31. https://doi.org/10.1016/0304-405X(85)90042-X

Cai, F., Joo, H., & Zhang, Z. (2009). Board of Governors of the Federal Reserve System International Finance Discussion Papers Number 973 The Impact of Macroeconomic Announcements on Real Time Foreign Exchange Rates in Emerging Markets The Impact of Macroeconomic Announcements on Real Time Foreign Exchange Rate in Emerging Markets. http://www.ssrn.com/.

Chang, E. C., Lin, T.-C., Luo, Y., & Ren, J. (2019). Ex-Day Returns of Stock Distributions: An Anchoring Explanation. Management Science, 65(3), 1076–1095. https://doi.org/10.1287/mnsc.2017.2843

Chen, M.-H., Jang, S. (Shawn), & Kim, W. G. (2007). The impact of the SARS outbreak on Taiwanese hotel stock performance: An event-study approach. International Journal of Hospitality Management, 26(1), 200–212. https://doi.org/10.1016/j.ijhm.2005.11.004

De Ridder, A., & Burnie, D. A. (2016). Managerial actions and nominal stock price levels. The European Journal of Finance, 22(14), 1435–1456. https://doi.org/10.1080/1351847X.2015.1019644

de Souza, M. J. S., Franco Ramos, D. G., Pena, M. G., Sobreiro, V. A., & Kimura, H. (2018). Do small caps generate above average returns in the Brazilian stock market? Review of Development Finance, 8(1), 18–24. https://doi.org/10.1016/j.rdf.2018.05.002

Dedman, E., Jiang, W., & Stark, A. (2017). The value relevance and information content of cash and stock dividends in China. The European Journal of Finance, 23(7–9), 648–673. https://doi.org/10.1080/1351847X.2014.996658

Dhatt, M. S., Kim, Y. H., & Mukherji, S. (1997). The role of stock dividends in Korea. Global Finance Journal, 8(2). https://doi.org/10.1016/S1044-0283(97)90021-1

Dissa, B., Piyal, H., & Samarakoon, L. P. (2002). Dividend Announcements, Firm Size and Dividend Growth in the Sri Lankan Stock Market. Sri Lankan Journal of Management, 7, 228–245. SSRN: https://ssrn.com/abstract=1395232

Elad, F. L., & Bongbee, N. S. (2017). Event Study on the Reaction of Stock Returns to Acquisition News. International Finance and Banking, 4(1), 33. https://doi.org/10.5296/ifb.v4i1.10409

Fama, E. F., Fisher, L., Jensen, M. C., & Roll, R. (1969). The Adjustment of Stock Prices to New Information. International Economic Review, 10(1), 1–21. https://doi.org/10.2307/2525569

Feito-Ruiz, I., Renneboog, L., & Vansteenkiste, C. (2020). Elective stock and scrip dividends. Journal of Corporate Finance, 64, 101660. https://doi.org/10.1016/j.jcorpfin.2020.101660

Foster, T. W., & Vickrey, D. (1978). The Information Content of Stock Dividend Announcements. The Accounting Review, 53(2), 360–370. http://www.jstor.org/stable/245899

Ghatak, A. (2011). Capital Market Reaction around the Stock Splits and Bonus Issues: Evidence from some Indian IT stocks. The International Journal, Research Journal of Social Science and Management, 1(5), 191–213. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2472393

Grinblatt, M. S., Masulis, R. W., & Titman, S. (1984). The valuation effects of stock splits and stock dividends. Journal of Financial Economics, 13(4). https://doi.org/10.1016/0304-405X(84)90011-4

Hanif, M., Hassan, M., Henchiri, B., & AlDaas, M. (2022). Impact of the COVID-19 pandemic on banking and financial sector stock returns. International Journal of Accounting, Business and Finance, 1(2), 19–35.

Heavilin, J. E., & Songur, H. (2019). Stock distributions and the Retained Earnings Hypothesis revisited. Finance Research Letters, 30, 240–245. https://doi.org/10.1016/j.frl.2018.10.002

Hu, C., Lin, J.-C., & Liu, Y.-J. (2022). What are the benefits of attracting gambling investors? Evidence from stock splits in China. Journal of Corporate Finance, 74, 102199. https://doi.org/10.1016/j.jcorpfin.2022.102199

Huang, L., Li, W., Wang, H., & Wu, L. (2022). Stock dividend and analyst optimistic bias in earnings forecast. International Review of Economics & Finance, 78, 643–659. https://doi.org/10.1016/j.iref.2022.01.007

Isiker, M., & Tas, O. (2021). Motives behind the return anomaly around bonus issue announcements: the case of emerging markets. Review of Behavioral Finance, ahead-of-print(ahead-of-print). https://doi.org/10.1108/RBF-05-2020-0092

Kadioglu, E., & Kirbas, A. (2021). Stock Dividend Ex-Day Abnormal Return. Ekonomski Pregled, 72(5), 670–696. https://doi.org/10.32910/ep.72.5.2

Khanal, A. R., & Mishra, A. K. (2017). Stock price reactions to stock dividend announcements: A case from a sluggish economic period. The North American Journal of Economics and Finance, 42. https://doi.org/10.1016/j.najef.2017.08.002

Kumari, V., & Pandey, D. K. (2021). An event study on the impacts of Covid-19 on the global stock markets. International Journal of Financial Markets and Derivatives, 8(2). https://doi.org/10.1504/IJFMD.2021.10038839

Kurt Gümüş, G., Tülay Yücel, A., Karaoğlan, D., & Çeli̇k, Ş. (2011). The Impact of Domestic and Foreign Macroeconomic News on Stock Market Volatility: Istanbul Stock Exchange. Boğaziçi Journal: Review of Social, Economic and Administrative Studies, 25(1), 123–137. http://ssrn.com/abstract=1992350

Lee, N. (2019). R&D investment, the signaling effect of stock dividends, and the corporate value of R&D intensive firms and biotech firms. Academy of Accounting and Financial Studies Journal, 23(4), 1–15.

Liljeblom, E. (1989). The Informational Impact of Announcements of Stock Dividends and Stock Splits. Journal of Business Finance & Accounting, 16(5). https://doi.org/10.1111/j.1468-5957.1989.tb00047.x

Lukose, P. J., & Rao, S. N. (2005). Does Bonus Issue Signal Superior Profitability? A Study of the BSE Listed Firms. Decision (0304-0941), 32(1).

Malhotra, M., M., T., & ArunKumar, G. (2007). Stock Market Reaction and Liquidity Changes Around Bonus Issue Announcement: Evidence from India. 10th Capital Markets Conference, Indian Institute of Capital Markets Paper. https://www.researchgate.net/publication/228251955_Stock_Market_Reaction_and_Liquidity_Changes_Around_Bonus_Issue_Announcement_Evidence_from_India

Marangu, K., Muathe, S., & Mwangi, L. (2019). Secondary equity offer announcements and share returns at nairobi securities exchange, Kenya. International Journal of Financial Research, 10(6), 95–107. https://doi.org/10.5430/ijfr.v10n6p95

Marisetty, N., & M, S. B. (2020). An Empirical Study on Expected Return Models with Reference to Bonus Issues and Stock Splits in Indian Share Market. SSRN Electronic Journal, 11(5), 1612–1630. https://doi.org/10.2139/ssrn.3731427

Masse, I., Hanrahan, J. R., & Kushner, J. (1997). The Effect of Canadian Stock Splits, Stock Dividends, and Reverse Splits on the Value of the Firm. Quarterly Journal of Business and Economics, 36(4), 51–62. http://www.jstor.org/stable/40473228

The Companies Act, 2013, Pub. L. No. ACT NO. 18 OF 2013, Ministry of Corporate Affairs (2013).

Mcnichols, M., & Dravid, A. (1990). Stock Dividends, Stock Splits, and Signaling. The Journal of Finance, 45(3), 857–879. https://doi.org/10.1111/j.1540-6261.1990.tb05109.x

Miller, M. H., & Modigliani, F. (1961). Dividend Policy, Growth, and the Valuation of Shares. The Journal of Business, 34(4). https://doi.org/10.1086/294442

Mishra, A. (2005). An Empirical Analysis of Market Reaction Around the Bonus Issues in India. In Indian Institute of Management Working Paper (No. 10; Vol. 10). https://doi.org/10.2139/ssrn.733043

Pandey, D. K., & Jaiswal, A. K. (2017). Impact of Demonetization on Indian Stock Market-An Empirical Study. Al-Barkaat Journal of Finance & Management, 9(2), 46. https://doi.org/10.5958/2229-4503.2017.00015.7

Pandey, D. K., & Kumar, R. (2022). Impact of the Russian invasion of Ukraine 2022 on the global tourism sector. Available at SSRN 4086650.

Pandey, D. K., & Kumari, V. (2021). Event study on the reaction of the developed and emerging stock markets to the 2019-nCoV outbreak. International Review of Economics & Finance, 71. https://doi.org/10.1016/j.iref.2020.09.014

Pandey, D. K., Kumari, V., & Tiwari, B. K. (2022). Impacts of corporate announcements on stock returns during the global pandemic: evidence from the Indian stock market. Asian Journal of Accounting Research, 7(2), 208–226. https://doi.org/10.1108/AJAR-06-2021-0097

Papaioannou, G. J., Travlos, N. G., & Tsangarakis*, N. V. (2000). Valuation Effects of Greek Stock Dividend Distributions. European Financial Management, 6(4), 515–531. https://doi.org/10.1111/1468-036X.00137

Pathirawasam, C. (2009). The information content of stock dividend announcements: Evidence from Sri Lanka. Ekonomická Revue - Central European Review of Economic Issues, 12(3), 103–114. https://doi.org/10.7327/cerei.2009.09.01

Peterson, R. (1971). Bonus Issues, Share Issues, Share Splits and Rights Issues. The Chartered Secretary, 198–207.

Rai, V. K., & Pandey, D. K. (2022). Does privatization of public sector banks affect stock prices? An event study approach on the Indian banking sector stocks. Asian Journal of Accounting Research, 7(1), 71–83. https://doi.org/10.1108/AJAR-06-2021-0078

Raja, M., & Sudhahar, J. C. (2010). An Empirical Test of Indian Stock Market Efficiency in Respect of Bonus Announcement Design A Digital Market Model for MSME in Indian Market View Project. Asia Pacific Journal of Finance and Banking Research; Mansfield, 4(4), 1–14. https://www.researchgate.net/publication/267703383

Ramachandran, J. (1985). Behaviour of Stock Market Prices, Trading Rules, Information and Market Efficiency. Unpublished Doctoral Dissertation, Indian Institute of Management, Ahmedabad.

Rao, K. C., & Geetha, T. (1996). Indian Capital Market: Informational Signalling and Efficiency. APH Publishing Corporation.

Rao, S. N. (1994). The adjustment of stock prices to corporate financial policy announcements. Finance India, 8(4), 941–953.

Rohit, B., Pinto, P., & Shakila, B. (2013). Market Reaction to Bonus Announcements: Empirical Evidence from Bombay Stock Exchange. Adarsh Journal of Management Research, 6(1), 28. https://doi.org/10.21095/ajmr/2013/v6/i1/88336

Sehgal, S., & Tripathi, V. (2005). Size Effect in Indian Stock Market: Some Empirical Evidence. Vision: The Journal of Business Perspective, 9(4), 27–42. https://doi.org/10.1177/097226290500900403

Sharpe, W. F. (1963). A Simplified Model for Portfolio Analysis. Management Science, 9(2), 277–293. https://doi.org/10.1287/mnsc.9.2.277

Sloan, R. G. (1987). Bonus Issues, Share Splits and Ex-Day Share Price Behaviour: Australian Evidence. Australian Journal of Management, 12(2), 277–291. https://doi.org/10.1177/031289628701200208

Wang, G., Wang, Y., Yang, D., Zhang, L., & Zhu, Q. (2021). Enhanced disclosure environment and stock dividend/split in China. Applied Economics Letters, 28(4). https://doi.org/10.1080/13504851.2020.1752896