STOCK SPLIT AND BUY BACK OF SHARES Abstract: This study presents evidence which indicates that stock prices, on average, react positively to stock dividend and stock split announcements that are uncontaminated by other contemporaneous firm-specific announcements. In addition, it documents significantly positive excess returns on and around the ex-dates of stock dividends and splits. Both announcement and ex-date returns were found to be larger for stock dividends than for stock splits. While the announcement returns cannot be explained by forecasts of imminent increases in cash dividends, the paper offers several signalling based explanations for them. These are consistent with a cross sectional analysis of the announcement period return STOCK SPLIT: A corporate action in which a company divides its existing shares into multiple shares. Although the number of shares outstanding increases by a specific multiple, the total dollar value of the shares remains the same compared to pre-split amounts, because the split did not add any real value. The most common split ratios are 2-for-1 or 3-for-1, which means that the stockholder will have two or three shares for every share held earlier. Also known as a "forward stock split." BUYBACK: The repurchase of outstanding shares (repurchase) by a company in order to reduce the number of shares on the market. Companies will buy back shares either to increase the value of shares still available (reducing supply), or to eliminate any threats by shareholders who
STOCK SPLIT AND BUY BACK OF SHARESAbstract: This study presents
evidence which indicates that stock prices, on average, react
positively to stock dividend and stock split announcements that are
uncontaminated by other contemporaneous firm-specific
announcements. In addition, it documents significantly positive
excess returns on and around the ex-dates of stock dividends and
splits. Both announcement and ex-date returns were found to be
larger for stock dividends than for stock splits. While the
announcement returns cannot be explained by forecasts of imminent
increases in cash dividends, the paper offers several signalling
based explanations for them. These are consistent with a cross
sectional analysis of the announcement period returnSTOCK SPLIT: A
corporate action in which a company divides its existing shares
into multiple shares. Although the number of shares outstanding
increases by a specific multiple, the total dollar value of the
shares remains the same compared to pre-split amounts, because the
split did not add any real value. The most common split ratios are
2-for-1 or 3-for-1, which means that the stockholder will have two
or three shares for every share held earlier. Also known as a
"forward stock split."BUYBACK: The repurchase of outstanding shares
(repurchase) by a company in order to reduce the number of shares
on the market. Companies will buy back shares either to increase
the value of shares still available (reducing supply), or to
eliminate any threats by shareholders who may be looking for a
controlling stake. A buyback allows companies to invest in
themselves. By reducing the number of shares outstanding on the
market, buybacks increase the proportion of shares a company owns.
Buybacks can be carried out in two ways:1. Shareholders may be
presented with a tender offer whereby they have the option to
submit (or tender) a portion or all of their shares within a
certain time frame and at a premium to the current market price.
This premium compensates investors for tendering their shares
rather than holding on to them.2. Companies buy back shares on the
open market over an extended period of time. Section 77A, 77AA, and
77B of Companies Act 1956The amendment of the Companies Act, 1956
came into force on 31st day of October, 1998. There was Insertion
of new sections 77A, 77AA and 77B.
