Stock Price Reaction to Bonus Issue – Evidence from Indian Equity Market

Abstract

Indian Economy, one among the fast growing economy in the world, has witnessed new heights in the Indian equity markets due to the recent earnings of the Indian companies in the recent times, which has lured the investors both domestic and foreign to show
keen interest in making investments in the Indian equities. Investors react to any corporate actions instantaneously, explicitly on the announcement of bonus issues which play a vital role in the fluctuations of share prices. Various studies so far has proved that the behaviour of the investing community towards bonus issue differ according to the interpretations given about the present and future prosperity of the stocks in the respective nations. An attempt has been made in this study, to analyze the behaviour of the share
prices in the Indian equity market towards the announcements of bonus issue, taking into account the price movements of the Nifty Index stocks that has announced its bonus issue, and to find out the impact of the price behaviour by comparing the stock performance with the performance of the market index. The purpose of the study is also to comprehend the behaviour of the Indian equity market, whether it aligns or differs with other major global equity markets. To assess the stock price reactions to bonus issue in the Indian equity market, Wilcoxon Matched Pairs Test has been applied in this study. The research has revealed that there is a significant impact on the price movement of shares in accordance with the size of the bonus issue in the Indian equity market as observed in other major global equity markets.