Analysis of Corporate Actions and Market Efficiency in India

Corporate actions of a company play a pivotal role in determining the fluctuations of share prices in and around the record date. A rational investor can use these actions for a buy or sell decision. Corporate actions are events by corporate that directly or indirectly affect the total value of holdings for the investor. Corporate actions are aimed at increasing shareholders value in return on their investment with the company based on their shareholding ratio. These actions are the issue of bonus, splits, dividends, buybacks etc. The literature depicts that there is an impact of these corporate actions on the share prices of the listed companies. The earlier studies focused individually on a corporate action, (say the issue of bonus and its effect on share prices). The current study focuses on all the major corporate actions such as bonus issues, stock splits, and rights issues of companies listed at National stock exchange during 2014-2016. An attempt is made to envisage the combined effect of these corporate actions using the 31-day event period. This study focuses on testing the market efficiency of these corporate actions using tools such as Variance ratio test, Runs test and T-Test. The analysis suggests that the Indian stock follows a Weak form of Efficiency based on the analysis.