A PROJECT REPORT

ON

“A STUDY ON IMPACT OF CORPORATE

ACTION ON STOCK PRICE”
Submitted in partial fulfilment of requirement for the award of the
Degree of

BACHELOR OF BUSINESS ADMINISTRATION

By

SRIRAM TARUNKUMAR

Hall Ticket No: 208618684118

Under the guidance of Ms. N. GAYATRI

(Associate Professor)

AVINASH DEGREE
COLLEGE
(Affiliated to Osmania University)
L.B. Nagar, Hyderabad
 [2018-2021]

AVINASHDEGREE
COLLEGE
(Affiliated to Osmania University)
L.B. Nagar, Hyderabad [2018 – 2021]

Department of Management Studies

Certificate

This is to certify that the Project Report titled “A STUDY ON IMPACT

OF CORPORATE ACTION ON STOCK PRICE” is the Bonafide
work done by SRIRAM TARUNKUMAR bearing the Hall Ticket No.:
208618684118 submitted in partial fulfilment of requirements for the
award of the degree of BACHELOR OF BUSINESS
ADMINISTRATION of Osmania University, Hyderabad during the
academic year 2018- 2021.

Place: L.B Nagar, Hyderabad

Date:

Internal Guide External Examiner

Principal
 DECLARATION

I hereby declare that the Project work entitled “A STUDY ON IMPACT

OF CORPORATE ACTION ON STOCK PRICE” submitted to
Department of Business Management, Avinash Degree College,
L.B.Nagar, Hyderabad (affiliated to Osmania University) is a bonafide
record of original work done by me under the guidance of
Ms. N.GAYATRI((Asso.prof)), and this project work is submitted in the
partial fulfilment of the requirements for the award of the degree of
BACHELOR OF BUSINESS ADMINISTRATION. This record has not
been submitted to any other University or Institute for the award of any
degree or diploma.

Place: Hyderabad

Date:

(SRIRAMTARUNKUMA
R)

H.T. No: 208618684118

 ACKNOWLEDGEMENT

I would like to express sense of gratitude to our Management, DR. Ratna

Kalpeti, Principal, Avinash Degree College, L.B.Nagar, Hyderabad.

I thank my Guide, Ms. N. GAYATRI ((Asso.prof))for her valuable

guidance and support in completing the project. I am also thankful to the

entire faculty and staff members of our college for their kind co-

operation.

Lastly, I would like to express my love and affection to my beloved

parents and best wishes towards our classmates providing us the moral

support and encouragement.

(SRIRAMTARUNKUM
AR)
 ABSTRACT

Do you at any point notice that the price of a share of a specific share of a company is falling
or raising? A fluctuation occurs in the price level of stock because of changes in various
factors like external and internal environment. Stock market is volatile. Behind these factors’
information released by the corporate public companies effect volatility in security prices. As
corporate actions may impact the company’s share price, many financial analysts observe
stock performance on the announced date and consider it is a gauge of how the market will
treat the news about particular company. Depending upon risk and return characteristics of
individual share. Any investor attempts to choose the most desirable securities and like to
allocate his funds over this group of securities. Announcement like dividend, splits, merger
and acquisitions of company any internal and external users of information interested in it.
These corporate actions play a vital role in the change in security prices in time span. In the
search of news with respect to company investor primary depends of fundamental data. A
part from these sources he looks at press release announced in the market. According theory
of efficient market, states it is impossible to beat the market because stock market efficiency
causes existing share prices to always incorporate and reflect all relevant information.
 INDEX
CHAPTER. No : CONTENTS PAGE NO.

Chapter-1  Introduction of 1-3

the study
 Need of the
study
 Objectives of
the study

Chapter-2 Review of literature 4-13

Chapter-3 Research methodology 14-18

Chapter-4 Theoretical framework 19-26

Chapter-5 Industry profile 27-36

Chapter-6 Research data analysis 37-55

interpretation

Chapter-7 Research findings 56-57

Chapter-8 conclusion 58-59

bibliography 60
 PAGE
DESCRIPTION
NO.

Table showing Calculation AR, CAR and t Test for each day of
1 Tech Mahindra 38

Table showing Daily Stock and Market Returns for sample

2 event window of TCS 42

Table showing: Daily Abnormal Returns and Cumulative

3 Abnormal Returns for sample event window of TCS 44

Table showing Calculation AR, CAR and t Test for each

4 day of bank of baroda 47

Table showing Calculation AR, CAR and t Test for each day of
Bharat petroleum
5 50

Table showing Calculation AR, CAR and t Test for each day of
6 53
Larsen and Tourbo

LIST OF TABLES
 PAGE
DESCRIPTION
NO.

Graph showing CAR before and after Announcement of tech

1 Mahindra 40

Graph Showing the flow AR, CAR and t Test for each day of Tech
Mahindra
2 41

Graph showing CAR vs Dividend for TCS for last 10 years

3 45
dividend announcements

4 Graph Showing the trends of AR and CAR of TCS 46

5 Graph Showing the trends of AR and CAR of Bank of Baroda 49

6 Graph Showing the trends of AR and CAR of Bharat Petroleum 52

7 Graph Showing the trends of AR and CAR of Larsen and Turbo 55

LIST OF CHARTS
 CHAPTER-1
INTRODUCTION

1
INTRODUCTION TO THE STUDY:

Corporate moves are those activities made by the supervisory group of a corporate element.
One of the cardinal standards of a Corporate Management is to improve the investor esteem.
Corporate activities are a piece of significant worth improving activity embraced by the
administration. These corporate activities might require further activity with respect to
financial backers. Corporate activities could be as Dividend, Rights qualification, Bonus,
Mergers, Stock split, combination and so on When a traded on an open market organization
gives a corporate activity, it's anything but an interaction that will carry changes to its stock.
Corporate activities draw in the consideration of Investors since the attempted corporate
activity shows an adjustment of the organization's monetary undertakings. There is a
conviction among financial backers that market costs are influenced by corporate activities in
view of this consideration.

2
1.1 Background of the Study
Corporate occasions effectively affect the financial exchange and it is been seen that stock
value developments is a space of examination that pulled in the consideration of different
researchers. Therefore, the present study attempts to contribute to the understanding of the
behavior of Indian share prices in relation to corporate actions. A standard event study
methodology is adopted in this study to examine the impact and price reactions of BSE
Sensex companies of BSE surrounding 60 days of the announcement dates. Abnormal returns
were calculated and t-tests are conducted to test the significance. From the study, it can be
inferred that stock split, Rights issue, Bonus, Dividend, Mergers and Buy-back of stocks etc.
announcement have positive impact of stock prices around announcement dates.

1.2 Need and importance of Study

Middle class people with earning capacities are increasing, simultaneously inflation is also
increasing. So the people who are intended to invest into stock markets are also increasing.
Corporate actions play vital role increase and decrease value of price it shows effect on
investment into stocks. This study also contributes to conceptual knowledge, from Indian
stock market perspective and from practical perspective, this study findings will be useful for
investor. From past decades it has been observed reforms in the Indian stock market. The
process of reforms in the stock market needs to be extending to speedier conclusion of
transactions, greater transparency in operations, improved services to investors and greater
investor protection while at the same time encouraging corporate sector to raise resource
directly from the market on an increasing scale. Modernization of the stock exchanges to
bring them equal to world standards in terms of transparency and reliability are also
necessary if foreign capital is to be attracted in significant scale

1.3 OBJECTIVES OF THE PROJECT

1. To study the various important corporate announcement

2. To study the investors behaviour on corporate announcements (price pressure, liquidity)

3. To identify the time window (before and after announcement) that maximizes the return
for shareholders.

3
 CHAPTER-2
REVIEW OF LITERATURE

4
 REVIEW OF LITERATURE
REVIEW-1
TITLE DATE AUTHOR

Impact of Corporate Action in March 2016 Dr. Kammili Kamalakara

Stock Market Rao

Description: The reason for this examination was to break down the effect of declaration
of corporate actions of Stock Split, Consolidation and Share buyback on the exchanged
volumes of the offers on the stock trades. This investigation inferred that corporate actions
are fundamentally affecting the market cost of stocks

REVIEW-2

TITLE DATE AUTHOR

A Study on Semi-Strong Efficiency September 2013 Remya Ramachandran
of Indian Stock Market

Description: The investigation targets analyzing the proficiency of Indian Stock market
by examining stock cost and exchanging volume response resultant upon the corporate
activity data. In the event that the market is effective costs completely mirror all data and to
assess there is no degree for unusual returns and sensational expansion in the exchanged
volume subsequent upon such arrival of data. Here the effectiveness of financial exchange is
tried by breaking down the dissimilation of corporate occasion declarations like profit, Stock
Split, consolidation, Bonus issue.

REVIEW-3
TITLE DATE AUTHOR

Impact Of Stock Split March 2014 D. Bhuvaneshwari Dr.

Announcement On Stock Prices K.Ramya

Description: - The current examination endeavours to add to the comprehension of the

conduct of Indian share prices according to stock split declarations. A standard occasion
study technique is embraced in this examination to look at the effect and price responses. The

5
examination tracked down that the financial backers acquire huge profits from the declaration
date and around the declaration dates of stock split. t esteems for both AAR and CAAR was
utilized to decipher the outcomes. These realities show that stock split declarations prompts
more certain strange returns and helps in anticipating the future returns and market
productivityREVIEW-4

TITLE DATE AUTHOR

Stock Market Reactions to Feb- 2015 Dr. Swati Mittal

Announcements of Stock Splits

Description: The goal of this paper is to check whether proficient market speculation
holds for Indian financial exchange or not i.e., regardless of whether there is any
development in share prices previously or after the rights issue declarations. The
investigation found that market responds positive to this sign and sees the stock split as
uplifting news bringing about the increment in share prices following the declaration. The
outcomes show that the Indian Capital Market is semi solid productive as it is utilizing the
data pertinent for security valuation and for venture dynamic. The role of SEBI can be
instrumental in forestalling insider exchanging with the goal that the certainty of the financial
backers is kept up and the securities exchange can turn out to be more energetic and dynamic.

REVIEW-5
TITLE DATE AUTHOR

Stock Price Reaction to Bonus Issue – March 2015 M. Muthusamy

Evidence from Indian Equity Market Dr, S Raja Mohan

Description: An endeavor has been made in this investigation, to break down the conduct
of the share prices in the Indian value market towards the declarations of reward issue,
considering the price developments of the Nifty Index stocks that has reported its reward
issue, and to discover the effect of the price conduct by contrasting the stock execution and
the presentation of the market record. It is seen from the examination that the scrip's in the
Nifty Index having higher reward proportion observer a positive effect and perform better
compared to the market Index. And yet in the event that the reward issue is more modest in

6
size, it neglects to draw in the financial backers and henceforth conveys an adverse
consequence. The exploration study has additionally demonstrated that the presentation of
that scrip's having lesser reward proportion is failing to meet expectations contrasted with the
market execution. Thus it is reasoned that the Indian Equity market is likewise acting
indistinguishable from the major Global Equity Markets comparable to the issue of extra
shares.

REVIEW-6
TITLE DATE AUTHOR

Corporate action processing: what May 2004 OXERA( Oxera is an

are the risks? independent economic
consultancy—one of the
largest in Europe)

Description: Based on the study’s findings, and given the increased focus on operational
risk management in the industry worldwide, it is important to raise awareness in the securities
industry that corporate actions do involve significant potential risks and costs, affecting the

front office as well as the back office.

REVIEW-7

TITLE DATE AUTHOR

Corporate Actions. A Guide to March 2013 Michael Simmons and

Securities Event Management Elaine Dalgleis

Description: It is important to know that security providers and their advisers will continue
to find ways to make more money, offer options to their shareholders and restructure their
finances. and life cycles, providing a basic structure that can be applied to the environment of
current and future corporate actions. In this way the operators are ready to tackle this ever-
present situation in the security industry.

REVIEW-8

7
 TITLE DATE AUTHOR

A NOTE ON CORPORATE May 2010 ArunSharma

ACTION

Description: Corporate actions are events initiated by companies that directly or indirectly
effects their investors or bondholders. It is important that the investor/ bondholder has a clear
picture of what a corporate action indicates about a company’s financial affairs and how that
action influences the company’s valuation and prospects. This, in turn, helps investors in
making informed investment decisions regarding the company.

REVIEW-9
TITLE DATE AUTHOR
ANALYSIS OF CORPORATE June. 2018 Thilak Venkatesan* Rakesh
ACTIONS AND MARKET N**
EFFICIENCY IN INDIA

Description: Corporate actions of 188 companies listed in the National stock exchange
during the period 2014 to 2016 revealed that majority of the stocks were mean reverting
which was observed using variance ratio test. A few companies have tendency to form trends
and move in same direction. The output obtained from performing runs test conveys that
majority of companies are random on announcement of corporate actions which concludes
that on performing all these test on the NSE listed companies which made a corporate action
during the period of 2014-2016 is a” Weak form of market efficiency.”

REVIEW-10
TITLE DATE AUTHOR

Corporate Actions May 2018 REEM HEAKAL

Description: When a publicly-traded company issues a corporate action, it is doing

something that will affect its stock price. If you're a shareholder or considering buying shares
of a company, you need to understand how an action will affect the company's stock. A

8
corporate action can also tell you a great deal about a company's financial health and its

short-term future.

REVIEW-11
TITLE DATE AUTHOR

The Wonderful Impact Of Corporate Action On May 2019 Naresh Kumar

The Stock Price You Need To Know Sharma

Description: Corporate actions have a major impact on stock prices. Dividends are the
medium to reward the shareholders. Companies declare divided as a percentage of face value.
If the investor has a desire to get a dividend then one should own the stock before the ex-
dividend date. The bonus issues are one of the forms of the stock dividend. It is a reward, a
company gives to its shareholders as an additional share. The stock split is done on the basis
of face value. The face value and the stock price changes in proportion to the change in face
value The rights issues are a suitable way through which a company raises fresh capital from
existing shareholders. Buyback is the signal of the positive outlook of the promoters. This
also conveys to the shareholders that the promoters are optimistic of the company’s
prospects.

REVIEW-12
TITLE DATE AUTHOR
Impact Of Dividend July 2010 Neetu Mehndiratta & Shuchi
Announcement On Stock Prices Gupta

Description: The present study attempts to contribute positively to the understanding of

the behavior of Indian share prices in relation to the dividend announcements. Dividend
announcements usually are considered as the positive signal to the shareholders and its
positive impact on the share prices is also expected. Using an event study methodology paper
find that despite of investors do not gain significant value in the period preceding as well as
on the dividend announcement day, yet they can gain value in the post announcement period.
Investors do shift their security positions at the time of dividend announcement, which
indicate that in post announcement period there is a possibility of information content in

9
dividend announcement in NSE. The evidence nevertheless shows that dividend increases
lead more positive abnormal returns, supporting the Efficient Market Hypothesis.

REVIEW-13
TITLE DATE AUTHOR

How corporate mergers and Jul 17, 2017 Yogita Khatri

acquisitions impact small
investors

Description: By Merging Small Investors or Retail Investors may think that, If a Company
is Some small Investors may think that Company is in Loss and they Sell their securities or
shares and the price of a particular Company’s Share will fall. Some Investors may think that
a company is merging because to make high profits and they hold the shares of that particular
company.

REVIEW-14
TITLE DATE AUTHOR

Impact of Merger on Stock OCTOBER 2018 Nagendra, Satish Kumar and

Market Laxon Department of Business
Administration, AIET, Mijar.

Description: This study examines the impact of merger on share prices of a company. In
most of the industries the abnormal return is higher after the date of merger, during post
merger period the investors have enjoyed higher return than expected, after the merger
development in the company would be different. The investors those who observing the
merger will definitely going to get benefit of it. shares after the merger is risk less and the
return after the merger is more, suggest that investors should buy the share during post-
merger period because one or the other day market will give high return. In this study
mergers having a positive impact on the investors wealth So the study concludes and suggest
that buying.

REVIEW-15
10
 TITLE DATE AUTHOR

Bonus Issue and Stock Price March 2012 Mr. Abhay Raja
Behaviour: A Study in Indian Context

Description: Bonus issue is clearly a positive affair for the company. The excess returns
after bonus issues fairly discount this positive impact. This conclusion is in the line with all
the literature reviewed. From the view point of investors, bonus issues result into
multiplication of face value of the shares they, held in the ratio of bonus declared. There is
not any direct benefit to investors as the market price of the securities after bonus ex-date
would be adjusted down in the same ratio, which cut down investors’ gains. But on the other
hand, investors indirectly receive the benefit of company’s increased capital base. On the
other hand, as the face value of the share does not cut down, and numbers of shares are
increased, the investors will be in a position to receive better dividends in future.
Simultaneously, as the market prices are adjusted down, trading interests also increases in the
security, which is further beneficial for the investors. By considering all these, the investors
are clearly at the side of receiving benefits, which results into higher excess returns after the
bonus issue for the investors.

REVIEW-16
TITLE DATE AUTHOR

AN EMPIRICAL ANALYSIS OF STOCK NOVEMBER 2010 Poonam Kumari ,

PRICE BEHAVIOUR AROUND BONUS Pushpender
ISSUE ANNOUNCEMENT IN INDIA

Description: Bonus issues are given to shareholders when companies are short of cash and
shareholders expect a regular income. Shareholders may sell the bonus shares and meet their
liquidity needs. Bonus shares may also be issued to restructure company reserves. Issuing
bonus shares does not involve cash flow. It increases the company’s share capital but not its
net assets. By this Study I Conclude that Bonus issues will give positive impact for the
Existing Shareholders in Long term but Not in Short Term.

TITLE DATE AUTHOR

11
 Stock Price Reaction to Bonus March 2015 M. Muthukamu
Issue – Evidence from Indian
Equity Market

REVIEW-17
Description: The results of the study proves that the bonus issue by the corporates have a
significant impact on the price movements of the shares and the market is reacting according
to the size of the bonus issues. It is observed from the study that the scrips in the Nifty Index
having higher bonus ratio witness a positive impact and perform better than the market Index.
But at the same time if the bonus issue is smaller in size, it fails to attract the investors and

hence delivers a negative impact.

REVIEW-18
TITLE DATE AUTHOR

Impact of stock splits on May 2011 Kavita Chavali Dhofar

stock price performance of University
selected companies in Indian
context

Description: Stock splits are like optical illusions but in reality they are only adjustments
in the number of shares outstanding. The company’s equity and the value of shareholders’
holdings remain unchanged. The study conducted reveals that there exists a positive market
reaction post-split announcements in case of the Indian stock market.

REVIEW-19
TITLE DATE AUTHOR

IMPACT OF BUYBACK ON November 2020 Published by Angel Broking

SHARE PRICE

Description: Though most blue-chip companies buy back shares regularly, investors
should do their due diligence well before making any investment. They should ideally watch

12
out for companies that offer lucrative or expanded buybacks. Amateur investors could refer to
the S&P 500 Buyback Index to identify companies that have been aggressively buying back
their shares. Stock buybacks are considered to be a definite way to build one’s net worth. To
get a broader picture, investors should become more familiar with its impact on the company,
share prices and future earnings.

REVIEW-20
TITLE DATE AUTHOR

Announcement Effect of April 2015 Shachi Bhargava* and Puja

Share Buyback on Share Agrawal**
Price at National Stock
Exchange:

Description: Share buybacks generally have a positive effect on the share price of the
stock. As the company repurchases its shares, the number of outstanding shares in the open
market decreases. Thus, the net profits will be now distributed among fewer shares which
will increase the company’s earnings per share. The price to earnings ratio will decrease
because the earnings per share have increased. A low p/e ratio will attract the investors and
soon people will start buying it. This will increase the price of the stock. Repurchasing its
own shares shows the faith of the management in its organization.

13
 CHAPTER-3

RESEARCH & METHODOLOGY

3. RESEARCH & METHODOLOGY

14
The proposed study is descriptive in nature, purely based on secondary data. Companies
listed under the BSE 100 index have been selected at a random basis. Event study
methodology is used to data analysis, which tries to measure the effect of an event and how
quickly these events are reflected in asset prices, is used to analyses the effect of the selected
events, Dividend, Stock split, Merger & Acquisition and Bonus issue. In this method two-
stage approach is used to test the stock price responses to corporate action announcement.
The first stage consists of estimation of parameter like beta based on the ex-post returns on
stocks and market index, and expected returns on each of the stocks based on the market
model. In the second stage these estimated parameters are used to calculate abnormal returns
around the event day. In this study, the date of corporate action announcement is defined as
day 0 or event day. If event day is a non-trading day then the immediately following trading
day is considered as an event day. Pre-announcement period includes 30 trading days prior to
the corporate action announcement date, (-30 to -1). Postannouncement period includes 30
trading days after the corporate action announcement (+1 to +30). Thus, we have taken the
event window of 61 trading days (including day 0 as the event day).

3.2. Data Management

The data collected for the project is secondary data. Secondary data is published data.
It is already available for using and its saves time. The main source of secondary data
are published market surveys, government publications advertising research report
and internal report such as sales, sales records orders, customer complaints and other
business records etc. The study has also depended on secondary data to little extent,
which is collected through internal source.

Sources of Secondary Data:

 Internet

 Magazines

 Newspapers

These sources were used to obtain information on banks and other institutions history,
current issues, policies, procedures etc, wherever required

15
3.3 Hypothesis

H1: There is a significant impact on the price of shares due to Corporate Actions

H0: There is no impact on the price of shares due to Corporate Actions

3.4 .Statistical Tools

Fama, Fisher, Jensen and Roll have developed a methodology for event studies. The
following steps are involved:

1. The expected and actual return, before and after the event, using the market model or the
capital asset price model are calculated.

2. The abnormal return (AR), as the difference between the expected return and the actual
return is calculated.

3. The cumulative abnormal return (CAR) is calculated.

Calculation of Abnormal Returns

Abnormal return for the purpose of this study has been calculated using the Market-Adjusted
Model. Abnormal return is the difference between actual returns and expected returns. The
expected return is also referred to as marketed returns. Abnormal returns can be calculated
using three models of market model, market adjusted model and mean adjusted model.
Cumulative abnormal return is sum of abnormal returns. Abnormal return (AR) has been
calculated using the following formula:

𝑨𝑹 = 𝑫𝑹 − 𝑬𝑹

Daily return (DR) of the company is calculated using the following formula:

𝑫𝑹 = 𝑳𝒏( 𝑪𝒖𝒓𝒆𝒏𝒕 𝑹𝒆𝒕𝒖𝒓𝒏/ 𝑷𝒓𝒆𝒗𝒊𝒐𝒖𝒔 𝑹𝒆𝒕𝒖𝒓𝒏)

Expected Return (ER) of the company is calculated using the following formula:

𝑬𝑹 = 𝜶 + 𝜷(𝑴𝑹) The same formula has also been used for calculation of market return
(MR).

𝑴𝑹 = 𝑳𝑵 ( 𝑪𝒖𝒓𝒆𝒏𝒕 𝑹𝒆𝒕𝒖𝒓𝒏/ 𝑷𝒓𝒆𝒗𝒊𝒐𝒖𝒔 𝑹𝒆𝒕𝒖𝒓𝒏)

16
The expected return on a security is generally estimated by using the market model (or
single index model) suggested by William Sharpe. The model used for estimating expected
returns is the following:

𝐸(𝑅𝑖) = 𝛼𝑖 + 𝛽𝑖 𝑅𝑚 + 𝑒𝑖 (1)

where, E(Ri)= Expected return on security i

Rm = Return on a market index (e.g. NSE NIFTY, BSE SENSEX)
αi & βi are constants, which are calculated by regressing stock and market returns over
estimation window. α denotes intercept, while β denotes the slope of the regression
equation.
ei is random error, assumed to be having zero mean and constant standard deviation during
the time period.
Hence the actual equation used in calculation is:

𝐸(𝑅𝑖) = 𝛼𝑖 + 𝛽𝑖 𝑅𝑚 (2)

Then, Abnormal Returns are calculated as:

𝐴𝑅𝑖 = 𝑅𝑖 − 𝐸(𝑅𝑖) (3)

Further, Cumulative Abnormal Returns are calculated over time period t as:

𝐶𝐴𝑅𝑖𝑡 = ∑𝐴𝑅________________________________------------
(4)

This gives a sense of how much AR has accumulated over a time period, hence gives real
effect of the event on the market price.
The daily returns of individual security and market index is calculated using below formula.

𝑅𝑖𝑡 = ln (𝑃𝑖𝑡/𝑃𝑖𝑡−1) ---------------------------- (5)

where,

Ritt – actual return on share or index i on day t,

Pit – price of share or index i on day t,

Pit–1 – price of share or index i on day t – 1

T-Test:

The 5% (1.69) level of significance with appropriate degree of freedom was used to test the
null hypothesis of no significant abnormal returns after the event day. The conclusions are
based on the results of t values on ARs for the event window. The t test statistics for AR for
each day during the event window is calculated as:
17
𝒕(𝑨𝑹) = 𝑨𝑹/ 𝑺𝒕𝒂𝒏𝒅𝒂𝒓𝒅 𝒆𝒓𝒓𝒐𝒓

3.5 Limitations of Study

1. Study of corporate actions is limited to Dividend, Bonus, Stock splits and Merger &
Acquisition only.

2. The project is mainly depended on secondary sources.

3. Research methodology and data analysis tools are limited only “Event Study
Methodology”

4. Study is limited to only stocks of BSE and NSE.

18
 CHAPTER-4

THEORETICAL FRAMEWORK

THEORETICAL FRAMEWORK

19
A corporate action is any activity that brings material change to an organization and impacts
its stakeholders, including shareholders, both common and preferred, as well as bondholders.
These events are generally approved by the company's board of directors; shareholders may
be permitted to vote on some events as well. Some corporate actions require shareholders to
submit a response.

When a publicly traded company issues a corporate action, it is initiating a process

that directly affects the securities issued by that company. Corporate actions can range from
pressing financial matters, such as bankruptcy or liquidation, to a firm changing its name or
trading symbol, in which case the firm must often update its CUSIP number, which is the
identification number given to securities. Dividends, stock splits, mergers, acquisitions and
spinoffs are all common examples of corporate actions.

Corporate actions can be either mandatory or voluntary. Mandatory corporate actions are
automatically applied to the investments involved while voluntary corporate actions require
an investor's response to be applied. Stock splits, acquisitions and company name changes are
examples of mandatory corporate actions; tender offers, optional dividends and rights
issues are examples of voluntary corporate actions.

TYPES OF CORPORATE ACTIONS

1.Dividend corporate action

Dividends are paid by the company to its shareholders. These are paid to distribute profits
made by the company during the year. The company pays dividends on the basis of per share.
Although, it is not mandatory for the company to pay out dividends every year. If the
company feels that instead of paying dividends to shareholders they are better off utilizing the
same cash to fund a new project for a better future, they can do so.

In the case of corporate action, the dividend is a mechanism through which the company
shares the profits with its investors. This can be in the form of a cash dividend or a stock
dividend. These are issued at a specified interval of time. It can quarterly, semi-annually or
yearly or a combination of all. There is a reduction in the company’s equity when there is a
distribution of dividends. The price of share gets reduced by the amount of dividend. For
example, if the share is trading at INR 100 and company declares a dividend of INR 2 per

20
share, so on the day when the dividend is distributed, the price of share post dividend will
trade at INR (100-2) i.e. INR 98.

Whereas, in the case of a stock dividend, the shareholder gets additional shares. Illustration,
when the company declares a stock dividend of 20%. This means that for every 10 shares
held, the shareholder gets two additional shares. Since it increases the shares outstanding by
diluting the earnings per share, so it led to a decrease in the share price.

2. Bonus issue corporate action

These are the shares that a company offers to its shareholders as a gift. Here a rule applies of
1:1 bonus issue. Further meaning is that the shareholders get one additional share for each
share that they are already holding. Normally, when a company confronts liquidity issues or
is not in a position to distribute the dividends, then they tend to issue bonus shares out of its
profits or reserves.

In case of bonus shares, the price of the shares of the company falls in the same proportion as
compared to the bonus share issued. Therefore, in a 1:1 bonus issue, the share price will fall
by 50%. The metric like earnings per share will also lower down. Anyhow, in the long term
as the stock prices increases, investors tend to gain. The positive part is that there is no tax on
the allotment of bonus shares. Bonus shares indicate the good health of a company. It also
shows that earnings will rise over the next 2-3 years.

The investors show more interest in buying the shares of the company that shows bonus
shares. Usually, the experts are against investing the company offering bonus shares in just
the sake of additional shares. One needs to check the recent earnings of the company as well
as growth, capital expenditure, etc.

3. Right issues corporate action

It is a corporate action event where a company seeks to increase its capital by issuing new
securities. The existing shareholders are given a chance to maintain their stake in the
company in order to prevent dilution. Therefore, the rights are credited to existing
shareholders of a company. The rights are nothing but the securities just like shares and can
be listed on a stock exchange. There is a predetermined trading period to trade the right
issues. During the exercise period, the right issues can be exercised to subscribe to new
securities. On the payment date, shareholders will receive inducing securities. They will then

21
pay the company the exercised price per share. The non-exercised rights, if not used, will
lapse.

In right issues, there are fresh shares that a company issues to its existing shareholder. The
major dissimilarity between bonus share and the right-issue is that the investors need to pay
for these issues. The prices are usually discounted. Further illustrations say, a 1:5 right-issue
implies that the investors will get to buy one additional share for every five shares they hold.
Mostly, Cash trapped companies turn to a rights issue to raise money. The major impact can
be that the share price falls in the same proportion as the rights issue.

4. Stocks split corporate action

When we hear stock splits for the first time it sounds like something weird but it takes place
on a regular basis. The stock split is a situation where a company can decide to increase the
number of its outstanding shares. While at the same time decreasing the nominal share
proportionally. In simple words, it means the stock that the investor hold actually will split.

After a stock split the number of shares you hold will increase. But the investment in the
value or the market capitalization is constant. It is as similar to the bonus issue. Companies
do the stock split with reference to the face value. Now, let’s suppose the face value of the
stock is INR 10. Further, the company announces for the stock split in the ratio of 1:2. Then
the face value will change to INR 5. If the investor owns one share before the split, then they
will now own two shares after the split.

The stock split is an action that the corporate takes as corporate actions. Here, a company
divides its existing shares into multiple shares. Usually, the companies get into the splitting
process to lower the trading price of their stock. This is to a range deemed comfortable by
most investors and increases the liquidity of the shares. Therefore, when a company’s share
price rises significantly, most public firms will stop to declare stock split. It is to reduce the
price to a more popular trading price. Although the number of shares outstanding increases
during a stock split. The total dollar value of the shares remains the same compared to pre-
split amounts because the split does not add any real value.

5. Buyback corporate action

Firstly, the concept of buyback denotes that it is a method that a company uses to invest in
itself. Next, the companies do this by buying shares from other investors in the market. Thus,

22
buyback decreases the number of shares that are outstanding in the market. However, this
method of buyback plays a vital role in corporate restructuring.

6.Mergers and acquisitions (M&A)

Mergers and acquisitions (M&A) is the area of corporate finances, management and strategy
dealing with purchasing and/or joining with other companies. In a merger, two organizations
join forces to become a new business, usually with a new name. Because the companies
involved are typically of similar size and stature, the term "merger of equals" is sometimes
used. With the help of mergers and acquisitions in the banking sector, the banks can achieve
significant growth in their operations and minimize their expenses to a considerable extent.
Another important advantage behind this kind of merger is that in this process, competition is
reduced because merger eliminates competitors from the banking industry. Through mergers
and acquisitions in the banking sector, the banks look for strategic benefits in the banking
sector. They also try to enhance their customer base.

MERGER:

Merger is defined as combination of two or more companies into a single

company where one survives and the others lose their corporate existence. The
survivor acquires all the assets as well as liabilities of the merged company or
companies. Generally, the surviving company is the buyer, which retains its identity,
and the extinguished company is the seller. Merger is also defined as amalgamation.
Merger is the fusion of two or more existing companies. All assets, liabilities and
stock of one company stand transferred to transferee company in consideration of
payment in the form of:

 Equity shares in the transferee company,

 Debentures in the transferee company,

 Cash

 A mix of the above modes.

23
 ACQUISITION:

Acquisition in general sense is acquiring the ownership in the property. In the context
of business combinations, an acquisition is the purchase by one company of
controlling interest in the share capital of another existing company.

Methods of Acquisition:

An acquisition may be affected by

(a) Agreement with the persons holding majority interest in the company
management like members of the board or major shareholders commanding
majority of voting power.
(b) Purchase of shares in open market
(c) To make takeover offer to the general body of share holders
(d) Purchase of new shares by private treaty
(e) Acquisition of share capital through the following forms of considerations viz.
means of cash, issuance of loan capital, or insurance of share capital.

Takeover:

24
 Takeover and acquisition are both terms that are used interchangeably. Takeover
differ from merger in approach to business combination i.e. the process of takeover,
transaction involved in takeover, determination of share exchange or cash price and
the fulfilment of goals of combination all are different in takeovers than in mergers.
For example, process of takeover is unilateral and the offeror company decides about
the maximum price. Time taken in completion of transaction is less in takeover than
in mergers, top management of the offeree company being more co-operative.

Purpose of Mergers and Acquisition:

The purpose of an offeror company for acquiring another company shall be reflected
in the corporate objectives. It has to be decided the specific objectives to be achieved
through acquisition. The basic purpose of merger or business combination is to
achieve faster growth of the corporate business. Faster growth may be had through
product improvement and competitive position.

Other possible purposes for acquisition are short listed below:

• Procurement of supplies

• Revamping production facilities

• Market expansion and strategy

• Financial strength

• General gain

• Own development plan

25
• Strategic purpose

• Corporate friendliness

• Desired level of integration

26
 CHAPTER-5

INDUSTRY&COMPANYPROFILE

27
 INDUSTRY&COMPANYPROFILE

Company Profile Of Tech Mahindra

Introduction

Tech Mahindra is an Indian Information Technology company that provides services such as
Network technology solutions and Business process outsourcing (BPO) to a huge variety of
industries. Tech Mahindra is a part of Mahindra group and is worth 4.7 billion dollars. Tech
Mahindra has a presence over 90 countries along with a support of 1, 15, 200+ professionals.
Tech Mahindra has helped over 903 global clients including Fortune 500 companies.

History

Mahindra & Mahindra started a joint venture with British Telecom in the year 1986. British
Telecom was initially a partner of 30% with Mahindra but later on gradually sold its entire
share to investors by the year 2012. In the year 2008-09 Tech Mahindra bought Satyam
Computer Services through a subsidiary and doubled its number of employees. Tech
Mahindra then finally merged with Mahindra Satyam in the year 2012 and thus created a $2.5
billion company IT company.

Organization Heads

1) Anand Mahindra is the chairman & founder of Tech Mahindra.

2) C.P Gurnani is the CEO of Tech Mahindra.

3) Vineet Nayyar is the Vice Chairman of the company.

28
Vision Statement

“We will Rise to be among the top three leaders in each of our chosen market segments while
fostering innovation and inclusion.We will consistently achieve top quartile growth by
contributing to our customers' success, by enabling our employees to realize their potential
and by creating value for all our stakeholders.”

Tagline Of The Company

Connected World. Connected Experiences.

Headquarters Of The Company

Pune, Maharashtra, India

Products and Services Offered

Tech Mahindra's digital and design experience, innovative platforms and reusable assets
bring together a number of technologies together to deliver a tangible business value and
experience to their clients. Tech Mahindra provides a wide range of information technology
related products and services such as

 ADMS Java & Open Source

 Cloud Computing
 Consulting
 Enterprise Architecture
 Integrated Engineering Solutions
 Infrastructure Management Services
 Mobility Solutions
 Product Life Cycle Management
 Enterprise Security Risk Management
 Testing
 CareXa
 Socio

29
  Uno- Robotic Process Automation
 PRISM
 Retirement & Wealth

Awards and Recognition

 Tech Mahindra is among the Fab 50 companies in the entire Asia according to a Forbes list
released in 2016.
 Tech Mahindra received Oracle Communications “Solutions Business Excellence” Award in
2018.
 Tech Mahindra won the Frost & Sullivan India ICT awards in June 2016.
 Tech Mahindra won the Golden Peacock Business Excellence Award in 2016
 Tech Mahindra's Mobomoney wins 'Industry choice awards' at prestigious CMA 2016.
 Tech Mahindra Performance Engineering wins IT Europa Awards in 2016.
 Tech Mahindra wins an Award for Best Use of Social Media in Employer Branding.
 Tech Mahindra won the Economic Times Telecom Awards 2016.

Geographical Presence

Tech Mahindra is a global IT company currently present across 90 countries.

Tech Mahindra branches in India are

 Bangalore
 Bhubaneswar
 Chandigarh
 Chennai
 Gandhi Nagar
 Gurgaon
 Hyderabad
 Kolkata
 Mumbai
 Nagpur
 Noida
 Visakhapatnam

30
 TCS Company Profile

TCS is one of the topmost recruiters in India in the field of information technology, therefore,
it is imperative for the aspirants to know some basic yet important information about the
company before going in for the interview. This blog states some basic information regarding
TCS such as its history, organization heads, the tagline of the company, products, and
services offered etc., which should be kept in mind by the candidates before going in for the
interview. Freshers are generally offered the role of 'Software Engineer Trainee' at TCS.

Introduction

Tata Consultancy Services Limited (TCS) is a subsidiary of the Tata Group, an Indian
information technology consulting and business solutions company which operates in 46
countries worldwide. TCS Limited was founded in 1968 by a division of Tata Sons Limited.
Its early contracts included punched card services to TISCO (now Tata Steel), working on an
Inter-Branch Reconciliation System for the Central Bank of India. In 1975 TCS made an
electronic depository and trading system called SEMCOM for Swiss company. TCS also
established India's first software research and development center called Tata Research
Development and Design Centre in Pune, Maharashtra. On 25 August 2004, TCS became a
Publicly Listed Company.

Some important aspects related to TCS are mentioned below.

 TCS is one of the largest employers of women with 35.3% of women employees.
 TCS became the first Indian IT company to reach $100 billion market capitalization with a
value of $102.6 billion in Bombay Stock Exchange and a second Indian company ever after
the Reliance industries that achieved the same in 2007.
 TCS is ranked 10th on the Fortune India 500 list in 2018.
 It is the world's 9th largest IT service provider by revenue.
 TCS is ranked 64th overall in Forbes World's most innovative company ranking, making it
the highest-ranked IT services company ever.
 In the latest, TCS, the biggest software services company, has added 12,000 jobs in the first
quarter of 2019 and sent offer letters to 30,000 fresh graduates building the employment level
in the country

31
TCS Company Organization Heads

1) N. Chandrasekaran is the chairman of the Tata consultancy services.

2) Rajesh Gopinathan is the CEO and Managing Director of Tata Consultancy Services.

TCS Mission Statement

“To help customers achieve their business objectives by providing innovative, best-in-class
consulting, IT solutions and services & to make it a joy for all stakeholders to work with us.”

Tagline Of The Company

Experience Certainty.

Headquarters Of The Company

Mumbai, Maharashtra, India

Products & Services Provided

TCS provides a wide range of information technology-related products and services including
application development, business process outsourcing, capacity planning, consulting,
enterprise software, hardware sizing, payment processing, software management, and
technology education services. The firm's established software products are TCS BaNCS and
TCS MasterCraft.

Geographical Presence

TCS is a global leader in technology and consulting services. It enables clients in 46 countries
to create and execute strategies for their digital transformation.

A part of the Tata group, TCS has 3,95,000 associates(including subsidiaries) representing
131 nationalities, spanning across 46 countries as of March 31, 2018. The company generated
consolidated revenues of US $19.09 billion( a growth of 8.6% over the previous year) for

32
the year ended on March 31, 2018, and is listed on the National Stock Exchange and Bombay
Stock Exchange in India.

TCS Branches in India

 Jaipur
 Chennai
 Ahmedabad
 Baroda
 Mysore
 Hyderabad
 Pune
 New Delhi
 Gurgaon
 Mumbai
 Lucknow
 Nagpur

TCS Company Awards and Recognition

 “Best Blockchain Breakthrough of the Year” at the 2019 FTF News Technology
Innovation Awards.
 Artificial Intelligence Excellence Award in the Self-Awareness category, 2019.
 TCS New York City Marathon App won the MediaPost Appy Award.
 World Intellectual Property Organization’s (WIPO’s) IP Enterprise Trophy.
 America’s Most Community-Minded Information Technology Company.
 Fastest Growing Brand of the Decade in IT Services globally by Brand Finance

33
 Bank of Baroda Ltd Company Profile

Industry: Banks

Sector: Financial

Employees:82886

INTRODUCTION:

Bank of Baroda provides various banking products and services to individual, government
departments, and corporate customers. The company operates through Treasury,
Corporate/Wholesale Banking, Retail Banking, and Other Banking Operations segments. It
offers savings and current accounts; fixed and recurring deposits; and NRI deposit products.
The company also provides loans, such as home, education, vehicle, personal, and mortgage
loans, as well as loans against securities, and public issues/IPO; professional, composite,
bridge, and short and medium term corporate loans, as well as loans for micro, small, and
medium enterprises; working capital finance, term finance, commercial vehicle finance,
export and import finance, advances against shares, bill finance, lines of credit, loans against
rent receivables, project finance, infrastructure finance, supply chain finance, loans for
takeover of accounts, foreign currency credit, and non-fund based services; and debit,
prepaid, and credit cards. In addition, it offers loans and advances, and pensions and
government schemes to rural and agricultural customers; life insurance, general insurance,
and health insurance products, as well as mutual funds; appraisal, merchant banking, cash
management, remittance, collection, ECS, correspondent banking, treasury, investment,
lockers, and capital market services; and ATM, mobile banking, internet banking, cash
recycler, and e-lobby services . Further, the company offers banking solutions for start-ups.
As of March 31, 2021, it operated a network of 8,214 branches; 96 overseas branches; and
11,633 ATMs. Bank of Baroda was founded in 1908 and is headquartered in Vadodara, India.

34
 Bharat Petroleum Corp. Ltd. Company Profile

Industry: Oil, Gas & Consumable Fuels

Sector: Energy

Employees:11249

INTRODUCTION:

Bharat Petroleum Corporation Limited refines crude oil and markets petroleum products in
India. The company operates through two segments, Downstream Petroleum; and Exploration
and Production of Hydrocarbons. It operates fuel stations that sell petrol, diesel, automotive
liquefied petroleum gas (LPG), and compressed natural gas. The company has a network of
15,402 fuel stations with 13,648 fully automated fuel stations. The company also provides
Bharat gas fuels to approximately 40 million homes; MAK Lubricants, such as automotive
engine oils, gear oils, greases, and specialties; and jet fuel and services to airlines, as well as
operates oil refineries in Mumbai, Bina, Numaligarh, and Kochi. In addition, it offers
industrial fuels products, such as gases, naphtha, diesel, kerosene, white oil, black oil, furnace
oil, bitumen, sulphur, and solvents and special products, as well as industrial lubricants.
Further, the company has participating interests in 27 blocks, including 15 blocks in India and
12 blocks in other countries; imports and exports of other petroleum products; and owns a
network of 2,241 km of multi-product pipelines, as well as engages in the natural gas
business. The company was formerly known as Bharat Refineries Limited and changed its
name to Bharat Petroleum Corporation Limited in August 1977. Bharat Petroleum
Corporation Limited was incorporated in 1952 and is based in Mumbai, India.

35
 Larsen & Toubro Ltd Company Profile
Industry: Construction & Engineering
Sector: Industrials
Employees: 45268

INTRODUCTION:

Larsen & Toubro Limited engages in engineering, construction, and manufacturing

operations worldwide. The Infrastructure segment engineers and constructs building and
factories, transportation infrastructure, heavy civil infrastructure, power transmission and
distribution, water and effluent treatment, smart world, and communication projects, as well
as metallurgical and material handling systems. The Power segment offers turnkey solutions
for coal-based and gas-based thermal power plants, including power generation equipment
with related systems and balance-of-plant packages. The Heavy Engineering segment
manufactures and supplies custom designed, engineered critical equipment and systems to the
fertiliser, refinery, petrochemical, chemical, oil and gas, and thermal and nuclear power
industries. The Defence Engineering segment designs, develops, prototypes, produces,
delivers, commissions, and supports equipment, systems, and platforms for the defense and
aerospace sectors. It also designs, constructs, commissions, repairs/refits, and upgrades of
defense vessels. The Others segment offers realty; hydrocarbon; markets and services
construction and mining machinery and parts; industrial valves; and manufactures and sells
rubber processing machinery. The company was founded in 1938 and is headquartered in
Mumbai, India.

36
 CHAPTER-6

RESEARCH DATA ANALYSIS INTREPRETATIONS

37
 RESEARCHDATAANALYSISINTREPRETATIONS
1.Tech Mahindra Ltd

Calculation AR, CAR and t Test for each day

38
 Before After

Period AR CAR t Test Period AR CAR t Test

-30 -0.0204 -0.0204 -1.5170 1 -0.0080 -0.0080 -
0.5932
-29 0.0087 -0.0117 0.6481 2 -0.0308 -0.0388 -
2.2922
-28 -0.0032 -0.0149 -0.2372 3 0.0041 -0.0347 0.3060
-27 -0.0082 -0.0230 -0.6072 4 -0.0044 -0.0391 -
0.3262
-26 -0.0240 -0.0470 -1.7860 5 -0.0011 -0.0402 -
0.0814
-25 0.0261 -0.0210 1.9379 6 -0.0076 -0.0478 -
0.5676
-24 0.0183 -0.0027 1.3616 7 -0.0378 -0.0855 -
2.8084
-23 -0.0083 -0.0110 -0.6162 8 0.0060 -0.0796 0.4434
-22 0.0028 -0.0082 0.2095 9 0.0019 -0.0777 0.1417
-21 -0.0043 -0.0125 -0.3210 10 0.0125 -0.0652 0.9269
-20 -0.0226 -0.0351 -1.6831 11 0.0145 -0.0507 1.0821
-19 -0.0063 -0.0414 -0.4655 12 0.0276 -0.0231 2.0507
-18 -0.0063 -0.0476 -0.4662 13 -0.0050 -0.0281 -
0.3740
-17 0.0034 -0.0442 0.2565 14 -0.0126 -0.0407 -
0.9372
-16 -0.0097 -0.0539 -0.7204 15 0.0013 -0.0394 0.0988
Above -15 -0.0032 -0.0571 -0.2417 16 -0.0058 -0.0452 - table
shows that 0.4295 Positive
AR is seen -14 0.0253 -0.0318 1.8835 17 -0.0037 -0.0489 - for 13
0.2771
days before the
-13 0.0083 -0.0235 0.6190 18 -0.0179 -0.0668 -
split 1.3314 declaration
and 12 -12 -0.0042 -0.0277 -0.3118 19 -0.0072 -0.0740 - days after
the 0.5365 declaration
-11 0.0148 -0.0129 1.0972 20 0.0093 -0.0647 0.6944
it shows that stock
-10 -0.0062 -0.0191 -0.4595 21 -0.0128 -0.0774 -
is giving 0.9493 strange
return -9 -0.0021 -0.0212 -0.1580 22 -0.0214 -0.0988 - before the
declaration 1.5883 more than
after the declaration
-8 -0.0181 -0.0393 -1.3481 23 -0.0494 -0.1482 -
window.
3.6730
-7 0.0131 -0.0262 0.9770 24 0.0113 -0.1369 0.8403
-6 0.0280 0.0018 2.0827 25 0.0316 -0.1052 2.3527
-5 -0.0248 -0.0230 -1.8419 26 0.0148 -0.0905 1.1001
-4 -0.0081 -0.0310 -0.5995 27 0.0125 -0.0780 0.9269
-3 0.0029 -0.0281 0.218539 28 -0.0230 -0.1010 -
1.7113
-2 0.0116 -0.0164 0.8656 29 -0.0061 -0.1071 -
 The above table uncovers that AR shows huge increment just on the - 25th, -
fourteenth , - sixth days and +12th, +25 days split data and subsequently it tends to
be reasoned that unusual returns can be acquired on discharge split declaration in
both when window.

Hypothesis testing

H1: There is a significant impact on the price of shares due to Corporate Actions

H0: There is no impact on the price of shares due to Corporate Actions

H1 is accepted and H0 rejected

Parametric Test (t- test)

To test the statistical significance between ARs of the pre and post-split
announcement period t-test is applied and the result is provided in the table

AR

Before After
Mean -0.0013 -0.0032
t Test -2.9524 -7.2476

The mean value of AR for 30 days before the announcement is 0.0002 and that for 30 days
after the announcement is -0.007. To test the significance of difference t test (5% level of
significance) is applied and from the result of the above analysis it is clear that the split
information will not influence share price of the companies in a significant manner

Graph showing CAR before and after Announcement

40
 0.0200

0.0000
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30
-0.0200

-0.0400

-0.0600

-0.0800

-0.1000

-0.1200 CAR Before

-0.1400 CAR After

-0.1600

Above graph showing CAR in before and after announcement is Negative; it reveals
that there is no positive abnormal return before announcement window.
As part of this study, abnormal returns (AR) and cumulative abnormal returns (CAR)
were calculated, during each dividend declaration event window. For TECHM, 10
dividend announcement event windows have been taken into consideration. The
below graph shows the trends

The Mean CAR over above period is: 2.62%.

Tech Mahindra has been giving once in a year dividend. Hence, it has only 10 observations

in last 10 years. While the mean CAR shows a positive number, it cannot be conclusively

41
said that dividend announcement for Tech Mahindra is more likely to give positive

abnormal returns. The overall trend line is flat, though it seems like going slightly lower. It

quite likely, that it will average out to zero in next few years.

Tata Consultancy Services Limited (TCS)

TCS is a multinational information technology (IT) service and consulting company

headquartered in Mumbai, Maharashtra. It is part of the Tata Group and operates in about
45+ countries. Recently, TCS’s market cap recently surged past the ₹8 trillion mark for the
first time, making it only the second Indian company after Reliance Industries Ltd (RIL) to
achieve this milestone.

As per event study methodology described above, abnormal returns (AR) and cumulative
abnormal returns (CAR) were calculated, during each dividend declaration event window.
There are two instances (Q4-2009 and Q4-2018) when company has declared bonus issue
also along-with dividend declaration. The market price reaction, thus captures effect of both
events i.e. dividend and bonus, and it is not possible to separate out just the dividend part or
bonus part. Hence, it is required to be excluded from the dividend announcement abnormal
returns study. However, bonus issue abnormal returns have been separately discussed.

Hence, for TCS, 38 dividend announcement event windows have been taken into
consideration. Calculation is shown below for one event window, as per steps below:

42
1. On 12th Jan 2018, TCS announced 700% dividend i.e. Rs.7/- per share. This date is taken
as T0.

2. Accordingly, event window is chosen as -7 & +7 trading days. Hence, T 1 = 3rd Jan 2018
and T2 = 23rd Jan 2018.

3. For the event window, daily returns are calculated for security (TCS) and index (NIFTY
50), using equation (5).

Table 2: Daily Stock and Market Returns for sample event window

Timeline Date Price Stock Nifty Market

Return Return

-7 03-Jan-18 2638.65 10443.20

-6 04-Jan-18 2657.10 0.70% 10504.80 0.59%

-5 05-Jan-18 2689.20 1.20% 10558.85 0.51%

-4 08-Jan-18 2714.40 0.93% 10623.60 0.61%

-3 09-Jan-18 2709.00 -0.20% 10637.00 0.13%

-2 10-Jan-18 2806.60 3.54% 10632.20 -0.05%

-1 11-Jan-18 2790.50 -0.58% 10651.20 0.18%

0 12-Jan-18 2776.35 -0.51% 10681.25 0.28%

1 15-Jan-18 2746.10 -1.10% 10741.55 0.56%

2 16-Jan-18 2850.85 3.74% 10700.45 -0.38%

3 17-Jan-18 2888.95 1.33% 10788.55 0.82%

4 18-Jan-18 2918.20 1.01% 10817.00 0.26%

5 19-Jan-18 2959.30 1.40% 10894.70 0.72%

6 22-Jan-18 3116.40 5.17% 10966.20 0.65%

7 23-Jan-18 3102.00 -0.46% 11083.70 1.07%

4. In order to calculate α and β, data for prior 42 days need to considered. T 3 = T1 – 42 = 3rd
Nov 2017. Hence the estimation window is 3rd Nov 2017 to 2nd Jan 2018.

43
5. For the estimation window, daily returns are calculated for security (TCS) and index
(NIFTY 50), in similar manner as in event window.

6. Using Microsoft Excel Regression tool, value of α and β is calculated as

Coefficients
Intercept 0.00010803
X Variable 1 0.204574465

There is interpreted as: Intercept = α and X Variable 1 = β.

Therefore, α = 0.00010803, β = 0.204574465.

These values can also be calculated using below formulae:

(6)

where,
x = Independent variable i.e market returns Rm, y =
Dependent variable i.e. individual security returns Ri

𝛼 = 𝑦̅ − 𝛽𝑥̅ (7)

where,

𝑦̅ = Mean value of dependent variable i.e security returns Ri

𝑥̅ = Mean value of independent variable i.e market returns Rm

Values calculated using formulae and Excel Regression tool are exactly the same. Since
it is much faster to use the tool, same has been used in this study.

7. The daily abnormal return (AR) is calculated using equation (2) and (3) in excel.
Further, cumulative abnormal returns (CAR) is also calculated using equation (4).

Table 3: Daily Abnormal Returns and Cumulative Abnormal Returns for sample event
window

44
 Timeline Date Abnormal Return Cumulative AR

-7 03-Jan-18

-6 04-Jan-18 0.57% 0.57%

-5 05-Jan-18 1.09% 1.65%

-4 08-Jan-18 0.80% 2.45%

-3 09-Jan-18 -0.24% 2.21%

-2 10-Jan-18 3.54% 5.75%

-1 11-Jan-18 -0.62% 5.13%

0 12-Jan-18 -0.58% 4.55%

1 15-Jan-18 -1.22% 3.33%

Timeline Date Abnormal Return Cumulative AR

2 16-Jan-18 3.81% 7.14%

3 17-Jan-18 1.15% 8.29%

4 18-Jan-18 0.94% 9.23%

5 19-Jan-18 1.24% 10.47%

6 22-Jan-18 5.03% 15.50%

7 23-Jan-18 -0.69% 14.81%

8. As it can be seen from above table, the CAR for this dividend window is 14.81%.

Some interpretations can be drawn from above sample, which to some extents are also
applicable for other samples as well.

• 2 days prior to actual announcement, on 10-Jan, price jumped significantly, giving AR

of 3.54%. It may be due to leakages of information or general anticipation of better
news.
• It took almost 6 days for information to be fully absorbed by the market.
• Hence, calculating CAR over event window, which includes pre-announcement days and
post-announcement days, gives better sense of CAR obtained by shareholders of the
company.

45
Similarly, abnormal returns and cumulative abnormal returns have been calculated for all
dividend announcement event windows. Below graph shows the trend.

Figure 1: CAR vs Dividend for TCS for last 10 years dividend announcements

The Mean CAR over above period is: 0.92%.

It can be seen from above chart, that there are a greater number of lower peaks, than higher
peaks in the chart, implying that that many times, the dividend announcement is likely to
give negative return than positive one. Since the mean of last 10 years’ data is less than 1%,
the returns average out over period time. The overall trend line is also flat and close to 0%.

It can also be seen from above chart, that large dividend% does not mean higher abnormal
return. In fact, sometimes the market moves opposite to abnormal return. E.g.

1. In April-2010, 1400% dividend was given, which included special dividend of 1000%.
However, TCS stock gave negative abnormal return of -5.30%.

2. In April-2012, 1600% dividend was given, which included special dividend of 800%. At
this time, TCS stock gave positive abnormal return of whopping 20.84%, which highest
in 10 years’ data analysed.

Hence for TCS, there does not seem to be any correlation between direction of dividend and
abnormal return. There may be other factors, more important than just dividend amount,
which decide direction of the stock price.

46
0.1000 CAR Before
0.0500 CAR After

0.0000
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30
-0.0500

-0.1000

-0.1500

-0.2000

-0.2500

-0.3000

Bank of Baroda

Before After

Period AR CAR t Test Period AR CAR t Test

-30 0.0162 0.0162 1.1371 1 -0.0165 -0.0165 -1.1530
-29 0.0124 0.0286 0.8658 2 -0.0132 -0.0296 -0.9240
-28 0.0012 0.0298 0.0856 3 0.0036 -0.0261 0.2513
-27 -0.0011 0.0287 -0.0802 4 -0.0332 -0.0593 -2.3267
-26 -0.0148 0.0139 -1.0354 5 -0.0985 -0.1578 -6.9007
-25 0.0047 0.0186 0.3278 6 -0.0276 -0.1853 -1.9319
-24 0.0193 0.0379 1.3554 7 -0.0072 -0.1926 -0.5069
-23 -0.0237 0.0142 -1.6613 8 0.0050 -0.1876 0.3490
-22 -0.0031 0.0111 -0.2183 9 -0.0323 -0.2199 -2.2650
-21 0.0128 0.0239 0.8950 10 -0.0059 -0.2258 -0.4103
-20 0.0131 0.0369 0.9171 11 0.0088 -0.2169 0.6198
-19 0.0054 0.0423 0.3768 12 0.0123 -0.2046 0.8621
-18 -0.0092 0.0332 -0.6411 13 0.0070 -0.1976 0.4907
-17 0.0104 0.0436 0.7311 14 -0.0125 -0.2101 -0.8741

47
 -16 -0.0046 0.0390 -0.3218 15 -0.0033 -0.2134 -0.2344
-15 -0.0032 0.0358 -0.2236 16 -0.0007 -0.2141 -0.0467
-14 -0.0081 0.0277 -0.5686 17 -0.0066 -0.2207 -0.4631
-13 0.0037 0.0314 0.2621 18 -0.0300 -0.2508 -2.1051
-12 0.0103 0.0418 0.7229 19 0.0359 -0.2148 2.5183
-11 0.0097 0.0515 0.6813 20 0.0088 -0.2060 0.6155
-10 -0.0121 0.0394 -0.8465 21 -0.0307 -0.2367 -2.1516
-9 -0.0244 0.0150 -1.7087 22 -0.0013 -0.2380 -0.0876
-8 0.0112 0.0262 0.7839 23 -0.0148 -0.2528 -1.0356
-7 0.0067 0.0329 0.4688 24 0.0217 -0.2311 1.5211
-6 -0.0038 0.0291 -0.2648 25 0.0148 -0.2163 1.0336
-5 -0.0147 0.0145 -1.0269 26 -0.0247 -0.2410 -1.7313
-4 -0.0201 -0.0056 -1.4085 27 0.0205 -0.2205 1.4372
-3 -0.0042 -0.0098 -0.2931 28 -0.0273 -0.2478 -1.9111
-2 -0.0181 -0.0279 -1.2664 29 0.0173 -0.2305 1.2131
-1 0.0330 0.0051 2.3088 30 0.0067 -0.2238 0.4691

Positive AR is seen for 16 days before the split announcement and 12 days after the
announcement it shows that stock is giving abnormal return before the announcement
more than after the announcement window.

The above table reveals that AR shows significant increase only on the -12th days and +19th
days split information and hence it can be concluded that abnormal returns cannot be
earned on release split announcement.

Hypothesis testing
H1: There is a significant impact on the price of shares due to Corporate Actions

H0: There is no impact on the price of shares due to Corporate Actions

H0 is accepted and H1 rejected

Parametric Test (t- test)

To test the statistical significance between ARs of the pre and post-split announcement
period t-test is applied and the result is provided in the table

Abnormal Return
Before After

48
 Mean 0.0002 -0.007
t Test 0.3542 -0.1542
The mean value of AR for 30 days before the announcement is 0.0002 and that for 30 days
after the announcement is -0.007. To test the significance of difference t test (5% level of
significance) is applied and from the result of the above analysis it is clear that the split
information will not influence share price of the companies in a significant manner.

Graph showing CAR before and after Announcement

0.1000 CAR Before

0.0500 CAR After

0.0000
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30
-0.0500

-0.1000

-0.1500

-0.2000

-0.2500

-0.3000

Above graph showing CAR in before announcement is positive and Negative after

announcement it reveals that there is positive abnormal return before announcement

window.

49
 Bharat Petroleum Corporation Ltd.

Calculation AR, CAR and t Test for each day

Before After
Perio AR CAR t Test Perio AR CAR t Test
d d
-30 0.003 0.003 0.175 1 0.030 0.030 1.745
0 0 0 2 2 6
-29 0.024 0.027 1.427 2 0.005 0.035 0.306
7 7 7 3 5 0
-28 0.000 0.028 0.025 3 - 0.031 -
4 2 6 0.003 6 0.227
9 9
-27 0.006 0.034 0.360 4 - 0.001 -
2 4 2 0.030 1 1.757
4 9
-26 0.003 0.037 0.188 5 0.042 0.043 2.468
3 7 8 7 8 0
-25 0.005 0.043 0.312 6 - 0.037 -
4 1 9 0.006 1 0.389
7 3
-24 0.012 0.055 0.726 7 - 0.007 -
6 7 8 0.029 4 1.719
8 7
-23 - 0.048 - 8 - - -
0.007 7 0.403 0.022 0.015 1.315
0 9 8 4 6
-22 - 0.047 - 9 0.024 0.009 1.415
0.000 7 0.053 5 1 6

50
 9 9
-21 - 0.036 - 10 0.013 0.022 0.774
0.011 3 0.661 4 5 6
4 1
-20 - - - 11 0.021 0.044 1.253
0.038 0.001 2.204 7 2 2
1 8 7
-19 - - - 12 0.006 0.050 0.356
0.019 0.021 1.148 2 3 4
9 7 6
-18 0.028 0.006 1.654 13 - 0.021 -
6 9 7 0.028 5 1.669
9 2
-17 - - - 14 - 0.017 -
0.011 0.005 0.688 0.004 2 0.248
9 0 7 3 1
-16 0.004 - 0.246 15 0.001 0.018 0.054
3 0.000 7 0 1 9
7
-15 0.022 0.021 1.303 16 0.015 0.034 0.917
5 8 2 9 0 2
-14 - 0.015 - 17 0.011 0.045 0.651
0.006 1 0.386 3 2 3
7 1
-13 - 0.004 - 18 0.002 0.047 0.134
0.010 6 0.606 3 6 0
5 2
-12 - - - 19 0.013 0.060 0.751
0.041 0.037 2.410 0 6 6
7 1 1
-11 0.016 - 0.953 20 - 0.013 -
5 0.020 9 0.046 9 2.700
5 7 1
-10 - - - 21 - - -
0.037 0.057 2.139 0.015 0.002 0.921
0 6 1 9 1 5
-9 - - - 22 0.004 0.002 0.282
0.008 0.066 0.510 9 8 9
8 4 8
-8 0.037 - 2.160 23 - - -
4 0.029 1 0.020 0.018 1.206
0 9 1 0
-7 - - - 24 0.013 - 0.767

51
 0.015 0.044 0.882 3 0.004 5
3 3 3 8
-6 0.034 - 1.983 25 - - -
3 0.010 1 0.020 0.025 1.173
0 3 1 9
-5 - - - 26 0.001 - 0.098
0.001 0.011 0.108 7 0.023 7
9 8 0 4
-4 - - - 27 - - -
0.001 0.012 0.058 0.017 0.040 0.984
0 9 7 0 4 3
-3 0.038 0.025 2.228 28 0.007 - 0.448
6 7 5 8 0.032 9
6
-2 - 0.008 - 29 0.016 - 0.962
0.016 9 0.970 7 0.016 4
8 4 0
-1 0.024 0.033 1.410 30 0.003- 0.173
4 3 5 0 0.013 4
0
Positive AR is seen for 15 days before the Dividend announcement and 18 days after
the announcement it shows that stock is giving abnormal return after the
announcement more than before the announcement date.
The above table reveals that AR shows significant increase only on the -8th -6th 3rd
days and +1st days split information and hence it can be concluded that abnormal
returns cannot be earned on release Dividend announcement.

Hypothesis testing

H1: There is a significant impact on the price of shares due to Corporate Actions

H0: There is no impact on the price of shares due to Corporate Actions

H1 is accepted and H0 rejected

52
 Parametric Test (t- test)
To test the statistical significance between ARs of the pre and post announcement
period t-test is applied and the result is provided in the table

AR

Before After
Mean 0.00111 -0.0004
t Test 1.92503 -0.751
The mean value of AR for 30 days before the announcement is 0.0011 and that for 30
days after the announcement is -0.0004. To test the significance of difference t test
(5% level of significance) is applied and from the result of the above analysis it is
clear that the Dividend information will not influence share price of the companies in
a significant manner.

Graph showing CAR before and after Announcement

0.0800

0.0600

0.0400

0.0200

0.0000
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30
-0.0200

-0.0400
CAR Before
-0.0600
CAR After
-0.0800

Above graph showing CAR in before and after announcement is positive it reveals
that there is positive abnormal return before and after announcement window

Larsen & Toubro Ltd.

Calculation AR, CAR and t Test for each day

53
Before After

Period AR CAR t Period AR CAR t

Test Test
-30 - - - 1 - - -
0.0028 0.0028 0.27 0.0109 0.0109 1.03
-29 - - - 2 0.0114 0.0005 1.07
0.0061 0.0089 0.58
-28 - - - 3 - 0.0001 -
0.0091 0.0181 0.86 0.0003 0.03
-27 - - - 4 - - -
0.0084 0.0265 0.79 0.0021 0.0020 0.20
-26 - - - 5 0.0206 0.0186 1.94
0.0143 0.0407 1.34
-25 0.0100 - 0.94 6 0.0018 0.0204 0.17
0.0308
-24 0.0134 - 1.26 7 0.0154 0.0358 1.45
0.0174
-23 - - - 8 - 0.0276 -
0.0134 0.0309 1.27 0.0082 0.77
-22 - - - 9 - 0.0199 -
0.0042 0.0351 0.40 0.0077 0.72
-21 - - - 10 - - -
0.0070 0.0421 0.65 0.0237 0.0038 2.23
-20 - - - 11 - - -
0.0023 0.0443 0.21 0.0130 0.0168 1.22
-19 - - - 12 - - -
0.0037 0.0481 0.35 0.0152 0.0320 1.43
-18 0.0242 - 2.28 13 0.0074 - 0.69
0.0238 0.0246
-17 0.0056 - 0.53 14 - - -
0.0182 0.0249 0.0495 2.35
-16 - - - 15 0.0030 - 0.29
0.0051 0.0233 0.48 0.0465
-15 - - - 16 - - -
0.0031 0.0264 0.29 0.0244 0.0709 2.30
-14 - - - 17 - - -
0.0049 0.0313 0.46 0.0142 0.0851 1.34
-13 - - - 18 0.0079 - 0.74
0.0014 0.0326 0.13 0.0772
-12 0.0027 - 0.25 19 - - -
0.0299 0.0003 0.0775 0.03

54
 -11 - - - 20 0.0145 - 1.37
0.0087 0.0387 0.82 0.0630
-10 0.0114 - 1.07 21 0.0212 - 1.99
0.0273 0.0419
-9 0.0046 - 0.43 22 - - -
0.0228 0.0021 0.0440 0.20
-8 - - - 23 - - -
0.0033 0.0261 0.31 0.0085 0.0524 0.80
-7 - - - 24 - - -
0.0156 0.0416 1.47 0.0011 0.0535 0.10
-6 - - - 25 0.0027 - 0.25
0.0025 0.0442 0.24 0.0508
-5 - - - 26 0.0074 - 0.70
0.0167 0.0608 1.57 0.0434
-4 - - - 27 - - -
0.0098 0.0707 0.93 0.0038 0.0472 0.35
-3 - - - 28 0.0005 - 0.05
0.0024 0.0730 0.22 0.0467
-2 - - - 29 0.0049 - 0.46
0.0072 0.0803 0.68 0.0418
-1 - - - 30 0.0215 - 2.03
0.0041 0.0843 0.38 0.0202

Positive AR is seen for 6 days before the dividend announcement and 8 days after the
announcement it shows that stock is giving abnormal return after the announcement
more than before the announcement date.
The above table reveals that AR shows significant increase only on the -18th days and
+5th +21 +30 days dividend information and hence it can be concluded that abnormal
returns can be earned on release dividend announcement.

Hypothesis testing

H1: There is a significant impact on the price of shares due to Corporate Actions

H0: There is no impact on the price of shares due to Corporate Actions

H1 is accepted and H0 rejected

55
Parametric Test (t- test)
To test the statistical significance between ARs of the pre and post announcement
period t-test is applied and the result is provided in the table

AR

Before After
Mean -0.0028 -0.0007
t Test -7.9423 -0.0635
The mean value of AR for 30 days before the announcement is -0.0028 and that for
30 days after the announcement is -0.0007. To test the significance of difference t
test (5% level of significance) is applied and from the result of the above analysis it
is clear that the split information will not influence share price of the companies in a
significant manner.

Graph showing CAR before and after Announcement

0.0600
CAR Before
0.0400
CAR After
0.0200

0.0000
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30
-0.0200

-0.0400

-0.0600

-0.0800

-0.1000

Above graph showing CAR in before and after announcement is Negative t it reveals
that there is no positive abnormal return in both announcement window.

56
 CHAPTER-7

RESEARCH FINDINGS AND CONCLUSIONS

57
 RESEARCH FINDINGS AND CONCLUSIONS

Findings

1. Corporate actions are having positive impact on stock prices.

2. All selected stocks are earning more number of positive abnormal return before

window and less number of positive abnormal returns after announcement window

3. Corporate actions lead to more liquidity of the securities.

4. Investors are earning abnormal return before announcement window but abnormal
return was not statistically not significant.

Conclusion
Overall company analysis shows that more number of positive abnormal returns before
corporate action announcement and less number of positive abnormal returns after
announcement. Hence, it can be stated that market reacts to corporate action
announcement positively before announcement and less positive after the announcement.
Paired sample t test proves that corporate action announcement exerts an impact on share
price. This study is of immense utility to investors as they can understand changes in
share prices of companies and market movement during bonus announcements that
would be helpful to them for making good portfolio investment decision in the right
time.

58
 CHAPTER-8

RECOMMENDATIONS

Recommendations
a. Before announcement window of corporate action is time window that maximizes the
return for shareholders.

59
b. After period of announcement of corporate action is not gives satisfactory return

c. Investor can earn abnormal return surrounding the corporate announcement.

Bibliography
www.bseindia.com
www.nseindia.com

60
www.moneycontrol.com
www.economictimes.com
www.businessline.com
www.eventstudytools.com

61