Corporate action From Wikipedia, the free encyclopedia Jump to: navigation, search Corporate finance Looking north

from the Empire State Building, New York City, 2005 Working capital Cash conversion cycle Return on capital Economic Value Added Just-in-time Economic order quantity Discounts and allowances Factoring Capital budgeting Capital investment decisions The investment decision The financing decision Sections Managerial finance Financial accounting Management accounting Mergers and acquisitions Balance sheet analysis Business plan Corporate action Societal components Financial market Financial market participants Corporate finance Personal finance Public finance Banks and banking Financial regulation Clawback v t e A corporate action is an event initiated by a public company that affects the se curities (equity or debt) issued by the company. Some corporate actions such as a dividend (for equity securities) or coupon payment (for debt securities (bonds )) may have a direct financial impact on the shareholders or bondholders; anothe r example is a call (early redemption) of a debt security. Other corporate actio ns such as stock split may have an indirect impact, as the increased liquidity o f shares may cause the price of the stock to rise. Some corporate actions such a s name change have no direct financial impact on the shareholders. Contents 1 2 3 4 Purpose Types Corporate Actions Information External links

Purpose The primary reasons for companies to use corporate actions are: Return profits to shareholders: Cash dividends are a classic example where a pub lic company declares a dividend to be paid on each outstanding share. Bonus is a nother case where the shareholder is rewarded. In a stricter sense the Bonus iss ue should not impact the share price but in reality, in rare cases, it does and results in an overall increase in value. Influence the share price: If the price of a stock is too high or too low, the l iquidity of the stock suffers. Stocks priced too high will not be affordable to all investors and stocks priced too low may be de-listed. Corporate actions such as stock splits or reverse stock splits increase or decrease the number of outs tanding shares to decrease or increase the stock price respectively. Buybacks ar e another example of influencing the stock price where a corporation buys back s hares from the market in an attempt to reduce the number of outstanding shares t hereby increasing the price. Corporate Restructuring: Corporations re-structure in order to increase their pr ofitability. Mergers are an example of a corporate action where two companies th at are competitive or complementary come together to increase profitability. Spi noffs are an example of a corporate action where a company breaks itself up in o rder to focus on its core competencies. Types Corporate actions are classified as voluntary, mandatory and mandatory with choi ce corporate actions. Mandatory Corporate Action: A mandatory corporate action is an event initiated b y the corporation by the board of directors that affects all shareholders. Parti cipation of shareholders is mandatory for these corporate actions. An example of a mandatory corporate action is cash dividend. All holders are entitled to rece ive the dividend payments, and a shareholder does not need to do anything to get the dividend. Other examples of mandatory corporate actions include stock split s, mergers, pre-refunding, return of capital, bonus issue, asset ID change, pari -passu and spinoffs. Strictly speaking the word mandatory is not appropriate bec ause the share holder per se doesn't do anything. In all the cases cited above t he shareholder is just a passive beneficiary of these actions. There is nothing the Share holder has to do or does in a Mandatory Corporate Action. Voluntary Corporate Action: A voluntary corporate action is an action where the shareholders elect to participate in the action. A response is required by the c orporation to process the action. An example of a voluntary corporate action is a tender offer. A corporation may request share holders to tender their shares a t a pre-determined price. The shareholder may or may not participate in the tend er offer. Shareholders send their responses to the corporation's agents, and the corporation will send the proceeds of the action to the shareholders who elect to participate. Sometimes a voluntary corporate action may give the option of how to get the pro ceeds of the action. For example in case of a cash or stock dividend option, the shareholder can elect to take the proceeds of the dividend either as cash or ad ditional shares of the corporation. (these are commonly known as Mandatory Event s with Options, as a dividend is mandatory but a shareholder has the option to e lect for the cash or to re-invest their cash dividend into the shares) Other typ es of Voluntary actions include rights issue, making buyback offers to the share holders while delisting the company from the stock exchange etc.

Mandatory with Choice Corporate Action: This corporate action is a mandatory cor porate action where share holders are given a chance to choose among several opt ions. An example is cash or stock dividend option with one of the options as def ault. Share holders may or may not submit their elections. In case a share holde r does not submit the election, the default option will be applied. Corporate Actions Information When a company announces a corporate action, registered shareholders are told of the event by the company's registrar. Financial data vendors collect such infor mation and disseminate it either via their own services to institutional investo rs, financial data processors or via online portals in the case of individual in vestors.