Wealth Maximization: An Empirical Analysis of Bonus Shares and Right Issue

Abstract

In financial management, wealth is defined as value of the shareholders equity. It is generally agreed in theory that financial goal of the firm should be maximization of shareholders’ wealth as reflected in the market value of the firm’s shares. The financial manger must know financial engineering and strategies to be adopted in influencing the market price of shares; otherwise he would find himself unable to maximize the market price of the company’s shares. The paper is a study on the bonus and right issue which are some of the important factors for maximizing shareholder’s wealth. So the basic objectives of the study are to know the relationships of bonus issue and right issue made by the company with EPS and MPS of their stocks. The results depicts that bonus issues does not make significant difference on EPS and MPS of stocks. Further, moderate degree of correlation was found between the variables. Also negative correlation was established between MPS and bonus issue on the contrary, EPS illustrated a positive value of correlation with bonus issues. Right issue shares do not influence earning per share but not market price per share. There is a high degree of positive correlation of EPS and MPS with pre and post right issue of shares respectively.