| Stock Return and Liquidity Effects of Bonus Issues, Stock Splits and Stock Dividends: Evidence from Korea |
|
Hyunseok Kim, Jungwon Suh |
| 무상증자, 액면분할, 주식배당: 주가와 거래량 효과 |
|
김현석, 서정원 |
|
성균관대학교 |
|
|
| Abstract |
|
This paper studies (i) bonus issues, (ii) stock splits and (iii) stock dividends. Korean firms often use these methods to award shares of common equity to shareholders with no consideration (i.e., with no capital transfer from shareholders to the firm). Our dataset consists of a total of 400 cases of bonus issues, stock splits and stock dividends that were performed by Korean firms over the period 2006~2011. Although all three methods increase the number of shares in circulation, they do not appear to be substitutes for one other. For example, the mean share increase ratio varies widely among them?664.8% for stock splits, 68.6% for bonus issue, and 5.5% for stock dividends. This means that stock splits increase the number of stocks dramatically?e.g., through 1-for-5 or 1-for-10 stock splits; it is rare for bonus issues to more than double the number of shares; and stock dividends increase the number of shares only slightly. Bonus issues are easy to carry out (only with board approval), whereas stock dividends and stock splits require ordinary and special shareholder resolutions, respectively. We find that the short-term price reaction to announcements (for example, as measured by the mean CAR (-1, 1)) is significantly positive in all three methods. However, cross-sectional regressions show that there is little difference in CAR among these methods, although CAR tends to increase significantly with the share increase ratio. Meanwhile, the long-term stock price performance over 1 to 3 years after announcements (as measured by the mean value of BHAR) is not significant in any method; moreover, more than half the firms in our sample display negative BHAR. We find little evidence in favor of the so called “the illusion-effect-hypothesis” that postulates that stock returns on ex-dates or new-share listing dates tend to be positive because downward adjustments of stock prices at the beginning of those days makes shares appear cheaper to investors who then push up stock prices. Finally, liquidity, as measured by the stock turnover ratio, increase significantly in stock splits, but not in bonus issues and stock dividends. In conclusion, the three methods are not substitutes to one another. While they may give rise to favorable stock price responses to announcements, their long-term stock price effects are non-existent or even negative. Liquidity increases only after stock splits and this increase in liquidity does not appear to generate long-term stock price gains. |
| Key Words:
무상증자,액면분할,주식배당,주가성과,신호효과,Bonus Issues,Stock Splits,Stock Dividends,Stock Price Effect,Signaling Effect |
|
PDF Links
Full text via DOI
Download Citation
