Announcement Effects and Determinants of Stock Splits and Free Bonus Issues in the Korean Stock Market

Yang, Heejin; Ju, Kangjin; Chung, Chune Young; Ryu, Doojin

doi:2017.46.4.879

Korean J Financ Stud > Volume 46(4); 2017 > Article

Korean Journal of Financial Studies 2017;46(4):879-900.
DOI: https://doi.org/10.26845/KJFS.2017.09.46.4.879 Published online September 30, 2017.

Announcement Effects and Determinants of Stock Splits and Free Bonus Issues in the Korean Stock Market

Heejin Yang, Kangjin Ju, Chune Young Chung, Doojin Ryu

주식분할과 무상증자

양희진, 주강진, 정준영, 류두진

¹성균관대학교
²창조경제연구회
³중앙대학교

Abstract

Using the sample firms listed in the KOSPI and KOSDAQ from September 2008 to December 2015, this study examines the stock splits and free-bonus issues (capital increase without consideration) in the Korean stock market. The empirical findings show that the market positively reacts to both stock splits and free-bonus issues, but the positive reactions are more evident in the free-bonus issues. In addition, the results reveal that the firms with a higher financial leverage are more likely to split their stocks. However, the firms with a higher return on equity (ROE) are more likely to adopt the free-bonus issue. These results imply that the determinants of stock splits and free-bonus issues could be dissimilar. In particular, we find that the positive market reactions to bonus issues are magnified in the firms with a higher ROE. The finding seems to reflect the market’s expectation of an increase in future dividend payments from the issuing firms because face value does not change after issuing bonus shares, and cash dividends are paid on face value in the Korean stock market. Overall, our findings reveal the heterogeneity of stock splits and free-bonus issues although they are seemingly alike.

Key Words: 주식분할,무상증자,사건연구,주가수익률,비교분석,Stock Split,Free Bonus Issue,Event Study,Comparative Analysis,Firm Value