Market Efficiency around Bonus, Stock Split and Rights Issue Announcement – Evidence from India

Abstract

Information content and market reaction to corporate announcement is imperative information for optimizing shareholders value. This study attempts to verify the market efficiency around three announcements i.e. bonus, stock split and rights issue, using standard event study methodology taking sample firms from Nifty Index. It attempts to verify whether there is any excessive abnormal return during event window. Abnormal returns were calculated by using market model and t-tests were conducted to test the significance. The result shows existence of significant positive abnormal return on announcement day of bonus and negative abnormal return for stock split and rights issue event. It also finds the existence of positive abnormal return surrounding announcement day for all the three events. Findings confirm with the results of earlier research and affirm that there is semi strong market efficiency and conclude that corporate announcement has effect on stock returns and shareholders’ value.

Keywords: Market efficiency, Abnormal returns, market reaction, event study methodology

JEL category: G23, G21