Efficient Market Theory: In Relation with Bonus Issue Announcement in Indian Market
01 Jul 2008-The Fourth Paradigm (SAGE PublicationsSage India: New Delhi, India)-Vol. 12, Iss: 2, pp 62-72
TL;DR: In this paper, the authors considered the bonus issue announcement as the indicator of market efficiency in developing market of India and proposed an efficient market theory, pioneered by Eugene Fama, for analyzing market efficiency.
Abstract: Efficient Market Theory, pioneered by Eugene Fama, attracted researchers for analysis of market efficiency in developing market of India. Mishra (2005) considered the bonus issue announcement as th...
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TL;DR: In this article , the impact of the Hindenburg Research report on the Adani Group's stock prices was investigated and the results showed that the majority of average abnormal returns and cumulative average abnormal return were statistically significant during the observation period, particularly in the post-event period.
Abstract: The present study investigates the impact of the Hindenburg Research report on the Adani Group’s stock prices. An event study analysis was conducted over a 21-daywindow period, including 10 days prior to, 10 days after and the day of the event. The results showed that the majority of average abnormal returns and cumulative average abnormal returns were statistically significant during the observation period, particularly in the post-event period. This indicates that the Hindenburg Research report had a significant impact on the stock prices of Adani Group companies. The findings suggest that the Indian stock market may not be efficient in its semi-strong form. Nonetheless, it was also noticed that the stock prices did not immediately respond to the information in the report. This study has significance for investors, firms, policymakers, and regulators as they can utilize it to evaluate such announcement effect on stock prices in the Indian stock market.
TL;DR: In this article , the impact of the Hindenburg Research report on the Adani Group's stock prices was investigated and the results showed that the majority of average abnormal returns and cumulative average abnormal return were statistically significant during the observation period, particularly in the post-event period.
Abstract: The present study investigates the impact of the Hindenburg Research report on the Adani Group’s stock prices. An event study analysis was conducted over a 21-daywindow period, including 10 days prior to, 10 days after and the day of the event. The results showed that the majority of average abnormal returns and cumulative average abnormal returns were statistically significant during the observation period, particularly in the post-event period. This indicates that the Hindenburg Research report had a significant impact on the stock prices of Adani Group companies. The findings suggest that the Indian stock market may not be efficient in its semi-strong form. Nonetheless, it was also noticed that the stock prices did not immediately respond to the information in the report. This study has significance for investors, firms, policymakers, and regulators as they can utilize it to evaluate such announcement effect on stock prices in the Indian stock market.
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TL;DR: This paper investigated empirically why firms split their stock or distribute stock dividends and why the market reacts favorably to these distributions and found that stock splits are mainly aimed at restoring stock prices to a "normal range."
Abstract: This study investigates empirically why firms split their stock or distribute stock dividends and why the market reacts favorably to these distributions. The findings suggest that stock splits are mainly aimed at restoring stock prices to a "normal range." Some support can also be found for the oft-mentioned signalling motive of stock splits. Stock dividends are altogether different from stock splits, and they appear to be a decreasing phenomenon. The clue to stock dividend distributions may lie in their perceived substitution for relatively low cash dividends. NEITHER STOCK SPLITS NOR stock dividends are recent phenomena. The latter dates back to the Elizabethan age. Among the first to declare such dividends was the East India Company, which, while enjoying great prosperity, declared in 1682 a stock dividend of one hundred percent.' During the eighteenth and nineteenth centuries, stock dividends were quite frequently distributed by British companies. In the United States, an early and frequently discussed stock dividend distribution was that of the New York Central Railroad just prior to its union with the Hudson River Railroad in 1869. Surprisingly, stock dividends were quite popular in the U.S. despite their being subject to federal income tax. Thus, for example, during the seven years prior to 1922, the year in which the Supreme Court exempted the recipients of stock dividends from taxes, the ratio of stock dividends to all dividend distributions was 14.5 percent. This ratio increased to a staggering forty-seven percent during the seven years succeeding the Supreme Court decision. During 1936 to 1937, some American companies distributed stock dividends to avoid the "undistributed profit tax."
496 citations
TL;DR: In this article, a multiple regression model is formulated to identify the factors that contribute significantly to the capital loss suffered by shareholders when firms decide to cut/omit dividends, in conformity with the information content hypothesis, the announcement period capital loss induced by a dividend deduction significantly depends on the percentage change in dividends, the size and risk of the firm, and the price performance of the stock in the immediately preceding period.
Abstract: In this paper the proposition is tested that stock market reaction to a dividend change is a function of its information content. A multiple regression model is formulated to identify the factors that contribute significantly to the capital loss suffered by shareholders when firms decide to cut/omit dividends. Results indicate that, in conformity with the information content hypothesis, the announcement period capital loss induced by a dividend deduction significantly depends on the percentage change in dividends, the size and risk of the firm, and the price performance of the firm's stock in the immediately preceding period. The results further reveal that (1) simultaneous announcements of poor earnings cause larger capital losses; (2) prior announcements of loss/lower earnings, strikes, etc. attenuate the negative impact of dividend cuts; (3) managerial reassurances that the dividend reduction is growth-motivated produces a weakly favorable effect, and (4) institution of stock dividends concurrently with the dividend cut significantly reduces the negative valuation effect. It is concluded from the evidence that stock market reaction to managerial signals is a function of the perceived costs associated with these signals.
142 citations
TL;DR: In this article, the authors examined the stock price reaction to the information content of bonus issues with a view of examining the Indian stock market is semi-strong efficient or not, and found that there are significant positive abnormal returns for a five-day period prior to bonus announcement in line with evidence from developed stock market.
Abstract: Past researches have revealed significant abnormal returns for bonus issues even though the bonus issue date is known in advance and the distribution contains no new information. This study examines the stock price reaction to the information content of bonus issues with a view of examining the Indian stock market is semi-strong efficient or not. The period of the study is June 1998 to August 2004. Samples of 46 bonus issues have been used to study the announcement effect by using event study methodology. The results indicate that there are significant positive abnormal returns for a five-day period prior to bonus announcement in line with evidence from developed stock market. On the announcement day the average abnormal return of -0.10% is observed. The results provide stronger evidence of semi-strong market efficiency of the Indian stock market.
56 citations
"Efficient Market Theory: In Relatio..." refers background in this paper
...Mishra (2005) documents the market behaviour around the bonus issue announcement date for the forty-six stocks listed in the National Stock Exchange of...
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...Mishra (2005) considered the bonus issue announcement as the information which con affect the efficiency of the market and challenge the Efficient Market Theory....
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TL;DR: In this paper, the authors examined open market share repurchases in Canada (called normal course issuer bids, henceforth NCIBs) and found that repurchasing firms in Canada are smaller, have greater free cash flow, and are more closely held than their non-repurchasing counterparts.
Abstract: This paper examines open market share repurchases in Canada (called normal course issuer bids, henceforth NCIBs). Similar to announcements of U.S. open market share repurchases, announcements of Canadian NCIBs are accompanied by a significantly positive stock price reaction. But if NCIBs signal information, then it is not in the same manner as U.S. repurchases. Canadian firms usually announce the legal maximum proportion of shares that they are entitled to repurchase (5%) rather than a target proportion as in the U.S. Thus, the signal in Canada is the announcement of the NCIB, not the target proportion. The conditional event study framework adopted in this paper takes into account the discrete nature of the signal and potential endogeneity of the NCIB announcement. As an alternative to signaling, we examine whether NCIBs are used by shareholders as a means of reducing financial slack and thereby ameliorating the costs of agency conflicts. Our estimates show that repurchasing firms in Canada are smaller, have greater free cash flow, and are more closely held than their non-repurchasing counterparts. We conclude that these results support the agency conflict hypothesis and are not consistent with the signaling hypothesis.
34 citations
TL;DR: In this paper, the authors analyzed the association of unexpected earnings with stock dividend and stock split announcements and found that post-distribution earnings realizations are greater than expected, and deviations of realized earnings from expected are directly related to the size of the stock distribution and the level of market anticipation of the event.
Abstract: This paper analyzes the association of unexpected earnings with stock dividend and stock split announcements. Unexpected earnings are modeled as the percentage deviation of actual earnings from expected. Value Line's earnings forecasts are used as a surrogate for the market's timely expectation of future earnings. The primary findings are: (1) postdistribution earnings realizations are greater than expected; and (2) deviations of realized earnings from expected are (a) directly related to the size of the stock distribution and (b) inversely related to the level of market anticipation of the event. Further, distribution size may be a proxy for market anticipation in that small distributions (stock dividends) are dominated by anticipated events and large distributions (stock splits) by unanticipated events. These findings are robust across samples that control for large measurement error due to small levels of forecasted earnings, and event contamination due to the simultaneous announcement of firm-related events. Examination of analysts' forecasts immediately following the event indicates a significant upward revision in earnings expectations. This finding, coupled with an analysis of a control sample of Value Line earnings forecasts, indicates that the observed unexpected earnings are not the result of systematic Value Line forecast error. Therefore, the paper provides support for the notion that stock distribution announcements convey future earnings information.
25 citations