Capital Market
Introduction to Corporate Action
Learning Outcome
3
Recognize different types of corporate events in the market
2
Impact on ownership, returns, and value.
1
Major Company Decisions Affecting Shareholders
Choose cool, soft colors instead of vibrant colors
Max 6 Points for Summary & Min 4
Renovating a House (Analogy)
A company is like a house owner.
Sells part of house → Demerger
Renovates rooms → Stock Split
Distributes rent → Dividend
Adds rooms for free → Bonus Issue
Renovation changes structure, not always total value.
Corporate Actions
If you own a part of a company, should you receive something when the company earns profit?
In what ways can a company reward its owners besides paying salary?
By Distributing the Profit
Company action: Distribution of profits to shareholders
This decision directly impacts the shareholders’ benefits and returns.
Corporate Actions
If a company wants to expand but doesn’t want to take a loan, where can it get money from?
Who should get the first chance to invest more — existing owners or outsiders?
Existing Owners
Company action: Raising capital from existing shareholders
This decision impacts shareholders’ ownership and future returns.
Corporate Actions
What happens to customers and owners, when two companies combine into one?
one company buys another, what should happen to the old owners?
When companies combine, customers continue with the new entity, while ownership, control, and value distribution among shareholders change
Company action: One company taking over or combining with another
This decision changes the ownership structure and impacts existing shareholders
What is Corporate Action?
In this slide we can summarize the previous three slides and arrive at the conclusion as follow
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Decision of Profit Distribution affect the shareholders
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Decision of Company Expansion affect the shareholders
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Decision of Company Merger Affect the Shareholders
Thus,
The decisions taken by the company that directly impact the shareholders and securities are called Corporate Actions.
Core Concepts (Slide 7)
Key Corporate Actions & Impact
Stock Split → Face value reduces, liquidity increases
Bonus Issue → Free shares, EPS adjusts
Dividend → Profit distribution
Buyback → Shares reduced, EPS improves
What is Corporate Action?
Corporate actions are decisions taken by a company that directly impact shareholders and securities.
Why Do Companies Announce Corporate Actions?
Reward shareholders
Restructure capital
Improve liquidity
Strategic expansion
Financial restructuring
Types of Corporate Actions
Mandatory (No action required):
Voluntary (Participation required):
Dividend
Bonus Issue
Stock Split
Merger / Demerger
Rights Issue
Buyback
Open Offer (OFS/ FPO)
Dividend and Bonus
Dividend : Profit Distribution
Bonus Issue: Free additional Share
Decision: Company decides to distribute a portion of its profits to shareholders as cash.
Impact: Shareholders receive income.
Decision: Issue additional shares free of cost.
Impact: Shareholders receive more shares.
Stock split & Merger/Demerger
Stock Split : Increasing Share liquidity
Merger/Demerger : Business Restructuring
Decision: Divide existing shares into smaller units
Decision: Combine with another company or separate a business unit.
Impact: Shareholders receive more shares; price per share reduces.
Impact: Ownership structure and holdings change for shareholders.
Right issue, Buy back and Open Offer
Rights Issue — Raising Capital from Existing Shareholders
Decision: Offer additional shares to existing shareholders.
Impact: Shareholders can invest more to maintain ownership
Summary
4
Therefore, investors must track these events carefully
3
They directly impact shareholders’ ownership and returns.
2
These decisions distribute profits, raise funds, or restructure.
1
Companies make lifecycle decisions called Corporate Actions.
Choose cool, soft colors instead of vibrant colors
Max 5 Points for Summary & Min 2
Quiz
Which is a mandatory corporate action?
A. Buyback
B. Rights Issue
C. Dividend
D. Tender Offer
Which is a mandatory corporate action?
A. Buyback
B. Rights Issue
C. Dividend
D. Tender Offer
Quiz-Answer