Market Reaction towards Bonus Issue Announcements in India-A Comparative Study between BSE and NSE

Abstract

Bonus issue to the stockholders is simply a process of capitalization of a company's accumulated profits. This only increases the number of shares outstanding without having any effect on stockholders' proportional ownership of stocks or the capital structure of the company. Thus bonus issue announcements are unlikely to contain any new information that can receive significant market reaction around such announcements. Interesting to note that empirical studies do document significant market reaction on and around the bonus announcements. This article measures the market reaction around bonus announcements in Indian stock market and thereby tests its semi-strong form efficiency with reference to BSE and NSE, using event study approach. It also aims to identify difference in the pattern of information impoundment between the two exchanges. Results reveal significant market reaction around bonus announcements confirming semi-strong form inefficiency and document observable difference in the pattern of information incorporation in the two exchanges.