Malhotra, Madhuri Malhotra and M., Thenmozhi and Gopalaswamy, Arun Kumar (2012): Liquidity changes around bonus and rights issue announcements: Evidence from manufacturing and service sectors in India. Published in: Wealth-International Journal of Money banking and Finance , Vol. Volume, No. Issue 1 (June 2012): pp. 28-34.
Download (465kB) | Preview
This paper examines the stock price liquidity changes before and after the bonus and rights issue announcements. Liquidity measured using raw trading volume ratio, relative trading volume ratio and liquidity ratio suggest that raw trading volume and relative trading volume have decreased around bonus and rights announcements. Market depth, as measured by the liquidity ratio, has significantly decreased after the bonus and rights issue announcement in the Indian stock market. There is evidence of negative and significant decrease in stock price liquidity for bonus and rights issue announcements similar to other issue announcements in US, UK and other emerging economies. The results support cash substitution hypothesis and signaling theory but rejects liquidity hypothesis with respect to bonus and rights issue announcements.
|Item Type:||MPRA Paper|
|Original Title:||Liquidity changes around bonus and rights issue announcements: Evidence from manufacturing and service sectors in India|
|Keywords:||Keywords: Bonus Issue, Rights Issue, Signaling Theory, Liquidity, Cash Substitution hypothesis|
|Subjects:||G - Financial Economics > G1 - General Financial Markets
G - Financial Economics > G1 - General Financial Markets > G12 - Asset Pricing; Trading volume; Bond Interest Rates
G - Financial Economics > G3 - Corporate Finance and Governance
|Depositing User:||Dr. Madhuri Malhotra|
|Date Deposited:||12. Sep 2012 04:43|
|Last Modified:||13. Feb 2013 11:06|
Adaoglu, C., 2005, Instability in the dividend policy of the Istanbul Stock Exchange (ISE) corporations: evidence from an emerging market. Emerging Markets Review. 1, 252–270. Amihud, Y. and H. Mendelson, 1995, Multimarket Trading: A Self-Regulatory Proposal.” Published in Global Equity Markets: Technological, Competitive, and Regulatory Challenges, Editor R. A. Schwartz and I. Walter, Irwin, New York: 342-351 Amihud, Y. and H. Mendelson, and B. Lauterbach (1997) Market Microstructure and Securities Values: Evidence from The Tel Aviv Stock Exchange, Journal of Financial Economics 45, 365- 390. Ball, R. and P. Brown, 1968, An Empirical evaluation of accounting income numbers, Journal of Accounting Research 4, 159-178. Ball, R. and S. P. Kothari, 1991, Security Returns Around Earnings announcements, The Accounting Review 66, 718-738.
Bamber, L. S., 1987, Unexpected earnings, firm size, and trading volume around quarterly earnings announcements, The Accounting Review 62, 510-532.
Bamber, L. S. and Y. S. Cheon, 1995, Differential price and volume reactions to accounting earnings announcements, The Accounting Review 70, 417-441.
Beaver, W., 1968, The information content of annual earnings announcements, Journal of Accounting Research 5, 67-92.
Beneish , M. D. and R. E. Whaley, 1996, An Anatomy of the "S & P Game": The Effects of hanging the Rules, The Journal of Finance 51, 1909-1930.
Berkman, H. and V. S. Elewarapu, 1998, Short-term traders and liquidity: a test using Bombay Stock Exchange data, Journal of Financial Economics 1, 339-355.
Biais, B., L. Glosten, and C. Spatt, 2005, Market microstructure: A survey of microfoundations, empirical results, and policy implications, Journal of Financial Markets 8, 217-264.
Brockman, P., and D. Y. Chung, 2003, Investor protection and firm liquidity. Journal of Finance 58, 921–937. Conroy, R.M., R. S. Harris, and B. A. Benet, 1990 The effects of stock splits on bid-ask spreads. Journal of Finance 45, 1285–1295.
Copeland, T., 1976, A Model of Asset Trading Under the Assumption of Sequential Information Arrivals, Journal of Finance 31, 135- 155. Copeland, T. E., and D. Galai, 1983, Information Effects on the Bid/Ask Spread, Journal of Finance 38, 1457-1469.
Demsetz, H., 1968, The cost of transacting. Quarterly Journal of Economics 82, 33–53. Denis, D., and G. B. Kadlec, 1994, Corporate Events, Trading Activity, and the Estimation of Systematic Risk: Evidence from Equity Offerings and Share Repurchases, The Journal of Finance 49, 1787-1811.
Eckbo, B. E., R. W Masulis, and O. Norli, 2000, Seasoned public offerings: resolution of the ‘new issues puzzle’, Journal of Financial Economics 56, 251-291.
Eckbo, B.E., and R. W. Masulis, 1992, Adverse selection and the rights offer paradox. Journal of Financial Economics 32, 293–332. Elyasiani, E. and L. G. Goldberg, 2004, Relationship Lending: A survey of literature, Journal of Economics and Business 56, 315-330.
Fisher, 1959, Determinants of risk premiums of corporate bonds. Journal of Political Economy 67, 3, 217-237. Foerster, S. R., and G. A. Karolyi, 1998, Multimarket trading and liquidity: a transaction data analysis of Canada–US interlistings, Journal of International Financial Markets, Institutions and Money 8, 393-412.
Franz, D. R., R. P. Rao, and N. Tripathy, 1995, Informed Trading Risk and Bid-Ask Spread Changes Around Open Market Stock Repurchases in the NASDAQ Market, Journal of Financial Research 4, 311-328.
Gajewski, J., and E. Ginglinger, 2002, Seasoned equity issues in a closely held market: evidence from France. The European Finance Review 6, 291–319.
Garbade, K. D. and W. L. Silber, 1976, Price Dispersion in the Government Securities Market, The Journal of Political Economy 84, 721-740.
Gebhardt, G., S. Heiden, and H. Daske, 2001, Determinants of Capital Market Reactions to Seasoned Equity Offers by German Corporations, No 85, Working Paper Series: Finance and Accounting from Department of Finance, Goethe University Frankfurt am Main.
Ghosh, C., and R. Woolridge, 1991, Dividend omissions and stock market rationality, Journal of Business Finance and Accounting 18, 315-30.
Grinblatt, M. R. Masulis, and S. Titman, 1984, The valuation effects of stock splits and stock dividends, Journal of Financial Economics 13, 461-490.
Han, K. C., 1995, The Effects of Reverse Splits on the Liquidity of the Stock, Journal of Financial and Quantitative Analysis 30, 159-169.
Ho, T., and H. R. Stoll, 1981, Optimal dealer pricing under transactions and return uncertainty. Journal of Financial Economics 9, 47–73. Ho, T., and R. Stoll, 1980, On Dealer Markets Under Competition, The Journal of Finance 35, 259-267.
Kamara, A., T. W. Miller Jr., and A.F. Siegel, 1992, The effect of futures trading on the stability of Standard and Poor 500 Returns. Journal of Futures Markets 12, 645-658.
Kang, J.K., and R. M. Stulz, 1996, How different is Japanese corporate finance? An investigation of the information content of new equity issues. Review of Financial Studies 9, 109–139. Kang, J.K., and R. M. Stulz, 1996, How different is Japanese corporate finance? An investigation of the information content of new equity issues. Review of Financial Studies 9, 109–139. Khan,W.A., and H. K. Baker, 1993, Unlisted trading privileges, liquidity and stock returns. Journal of Financial Research 16, 221–236.
Kim, O., and R. Verrecchia, 1991, Market reaction to anticipated announcements. Journal of Financial Economics 30, 272–309. Kothare, M., 1997, The effects of equity issues on ownership structure and stock liquidity: A comparison of rights and public offerings, Journal of Financial Economics 43, 131-148.
Kumar, M. L. M. Bhole, and S. M. Saudagarn, 2003, Investment-Cash Flow Sensitivity and Access to Foreign Capital of Overseas Listed Indian Firms, Vikalpa 28, 47-59.
L.R. Glosten and P.R. Milgrom, 1985, Bid, Ask and Transaction Prices in a Specialist Market with Heterogeneously Informed Traders. Journal of Financial Economics, 14, 71-100.
Lakonishok and Lev, 1987, Stock Splits and Stock Dividends: Why, Who and When? Journal of Finance 42, 913 – 932. Lease, R. C., R. W. Masulis, and J. R. Page, 1991, An Investigation of Market Microstructure Impacts on Event Study Returns, The Journal of Finance, 46, 4, 1523-1536.
Lee, C., B. Mucklow, and M.J Ready, 1993, Spreads, depths, and the impact of earnings information: An intraday analysis. Review of Financial Studies 6, 345–374. Loderer, C., and H. Zimmermann , 1983, Stock offerings in a different institutional setting: the Swiss case. Journal of Financial Economics 12, 353–378. Lynch, A. W. and R. R. Mendenhall, 1997, New Evidence on Stock Price Effects Associated with Changes in the S&P 500 Index, The Journal of Business 70, 351-383.
Marsden, A., 2000, Shareholder wealth effects of rights issues: evidence from the New Zealand capital market. Pacific- Basin Finance Journal 8, 419–442. Miller, J. M., and J. J. McConnell, 1995, Open-Market Share Repurchase Programs and Bid-Ask Spreads on the NYSE: Implications for Corporate Payout Policy, The Journal of Financial and Quantitative Analysis 30, 365-382.
Moel, A., R. Rigobon, and A. Karolyi, 2001, The Role of American Depositary Receipts in the Developments of Emerging Markets, Economia 2, 209-273.
Morse, D., 1981, Price and trading volume reaction surrounding earnings announcements: A closer examination. Journal of Accounting Research 19, 374-383. Muscarella, C.J., and M. S. Piwowar, 2001, Market microstructure and securities values: evidence from the Paris Bourse. Journal of Financial Markets 4, 209–229. Noronha, G. M., D. K. Shome, K. Dilip, and G. E. Morgan, 1996, The monitoring rationale for dividends and the interaction of capital structure and dividend decisions, Journal of Banking and Finance 20, 439-454 Pagano, M. and A. Roell, 1992, Auction and dealership markets: What is the difference? European Economic Review 36, 613-623.
S.J. Grossman and M.H. Miller, 1988, Liquidity and Market Structure. Journal of Finance 43, 617-633.
Salamudin, N., M. Ariff, and A. M. Nassir, 1999, Economic influence on rights issue announcement behavior in Malaysia. Pacific-Basin Finance Journal 7, 405–427. Slovin, M.B., M. E. Sushka, and K. W. L. Lai, 2000, Alternative floatation methods, adverse selection, and ownership structure: evidence from seasoned equity issuance in the U.K. Journal of Financial Economics 57, 157–190. Smith K. and G. Sofianos, 1997, The Distribution of Global Trading in NYSE-listed Non-U.S. Stocks,” NYSE working paper.
Smith, J. B. and D. W. Barclay, 1997, The Effects of Organizational Differences and Trust on the Effectiveness of Selling Partner Relationships, The Journal of Marketing 61, 3-21.
Stoll, H., 1989, Inferring the components of the bid–ask spread: theory and empirical tests. Journal of Finance 44, 115–134.
Tsangarakis, N. V., 1996, Shareholder wealth effects of equity issues in emerging markets: evidence from rights offerings in Greece. Financial Management 25, 21–32.