Corporate action

A corporate action is an event initiated by a public company that affects the securities ( or debt) issued by the company. Some corporate actions such as a dividend (for equity securities) or coupon payment (for debt securities) may have a direct financial impact on the shareholders or bondholders; another example is a call (early redemption) of a debt security. Other corporate actions such as may have an indirect impact, as the increased liquidity of shares may cause the price of the stock to decrease. Some corporate actions such as name change have no direct financial impact on the shareholders. Corporate actions are typically agreed upon by a company's board of directors and authorized by the shareholders. Some examples are stock splits, dividends, mergers and acquisitions, rights issues and spin offs.

The primary reasons for companies to use corporate actions are:

Return profits to shareholders: Cash dividends are a classic example where a public company declares a dividend to be paid on each outstanding share. Bonus is another case where the shareholder is rewarded. In a stricter sense the Bonus issue 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 liquidity 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 or increase or decrease the number of outstanding shares to decrease or increase the stock price respectively. are another example of influencing the stock price where a corporation buys back shares from the market in an attempt to reduce the number of outstanding shares thereby increasing the price.

Corporate Restructuring: Corporations re-structure in order to increase their profitability. Mergers are an example of a corporate action where two companies that are competitive or complementary come together to increase profitability. Spinoffs are an example of a corporate action where a company breaks itself up in order to focus on its core competencies.

As a beneficial owner, the impact of a corporate event (action) is usually measured in terms of its impact to securities and/or cash positions; consequently corporate action events can be categorized as follows:

Benefits: The events that result in an increase to the position holder’s securities or cash position, without altering the underlying security; example can be cited of, a bonus issue, which is a Mandatory With Options Action/Event.

...
Wikipedia