Bonus Share Issues and Announcement Effect: Australian Evidence

27 Pages Posted: 4 Nov 2001

See all articles by Balasingham Balachandran

Balasingham Balachandran

La Trobe University - School of Economics and Finance; Financial Research Network (FIRN)

Sally Tanner

Monash University - Department of Accounting

Date Written: October 2001

Abstract

This study examines share price reaction to announcement of bonus share issues of Australian companies (equivalent to stock dividends in the US and scrip issues in the UK). Price reaction to bonus issue announcements from the day of the announcements to the day after the announcements (day 0 to day 1) is statistically significant and positive of average 2.37% for uncontaminated events and 2.11% for contaminated events employing the market model. We do not find any statistically significant difference of price reaction between these two groups. However, price reaction to bonus issue announcements is statistically significantly stronger for industrial non-financial companies and mining companies than financial companies. Pre-announcement effect was found only for industrial non-financial companies and financial companies that announced bonus issues simultaneously with other market sensitive information such as interim or final results. The magnitude of price reactions to bonus issue announcements is statistically related to the size of the bonus issues and the pre-announcement effect.

Keywords: Price reaction, Bonus issues, Stock dividend, Signalling and Australia

JEL Classification: G35

Suggested Citation

Balachandran, Balasingham and Tanner, Sally, Bonus Share Issues and Announcement Effect: Australian Evidence (October 2001). Available at SSRN: https://ssrn.com/abstract=288743 or http://dx.doi.org/10.2139/ssrn.288743

Balasingham Balachandran (Contact Author)

La Trobe University - School of Economics and Finance ( email )

La Trobe University
Bundoora, Vic, 3086
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Sally Tanner

Monash University - Department of Accounting ( email )

Building 11E
Clayton, Victoria 3800
Australia

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