When you invest in the stock market, companies sometimes take actions that directly affect your shares. These events are called corporate actions, which are decisions made by a company’s board of directors that can change a security’s price, its number of shares, or the benefits you receive as a shareholder. Understanding corporate actions can help you interpret price movements and avoid surprises as an investor.

What Are Corporate Actions?

A corporate action is any event initiated by a company that has a direct impact on its securities usually stocks. These events may be mandatory (applied automatically to all shareholders) or voluntary (requiring shareholder participation). Common corporate actions include dividends, bonus issues, stock splits, rights issues, and buybacks.

Corporate actions often lead to changes in the number of outstanding shares or in the stock price, and they may reflect a company’s financial strategy or health.

Bonus Issues

What Is a Bonus Issue?

A bonus issue (also called a scrip issue or capitalisation issue) is when a company distributes additional shares to its existing shareholders at no cost. These bonus shares are issued proportional to the number of shares a shareholder already owns.

For example, if a company declares a 1:1 bonus issue, every shareholder will receive one additional share for each share they already hold. If you own 100 shares, you end up with 200. The key point is that the total value of your holding immediately after the issue generally remains the same because the share price adjusts accordingly.

Why Do Companies Issue Bonus Shares?

Companies may issue bonus shares to:

• Reward shareholders without paying cash.
• Make shares more affordable if the price has risen too high.
• Signal confidence in future profitability.

Bonus issues do not change the company’s fundamental value but increase the number of shares in the market.

Stock Splits

What Is a Stock Split?

A stock split is a corporate action where a company divides its existing shares into multiple shares, increasing the total number of shares while reducing the price per share proportionately. Importantly, the total value of your investment stays approximately the same after the split.

For example, in a 2-for-1 stock split, one share becomes two. If a stock was trading at ?2,000 before the split, it might open at around ?1,000 after though market prices can still fluctuate due to normal trading.

Why Split Shares?

Companies typically split their stock to:

• Make shares more affordable for retail investors.
• Improve liquidity by increasing the number of shares available for trading.
• Align the share price with market norms if it has risen significantly.

While the split does not change the company’s market value, it often leads to greater trading activity.

Share Buybacks

What Is a Buyback?

A share buyback (or share repurchase) is when a company repurchases its own shares from the open market or directly from shareholders. The company may then cancel the repurchased shares or hold them as treasury stock.

Buybacks are a way for a company to return cash to shareholders, similar to dividends, but done by reducing the number of shares outstanding instead of making direct cash payouts.

Effects of Buybacks

When a company buys back shares:

• The number of outstanding shares decreases, which can raise earnings per share (EPS) since net earnings are spread over fewer shares.
• A reduced float may support the stock price as supply tightens.
• Investors who sell during the buyback receive cash in exchange for their shares.

Buybacks may signal that the company’s management believes the shares are undervalued or that the company has excess cash that cannot be profitably reinvested.

How These Actions Affect Investors

Each of these corporate actions affects the number of shares you own and how they are priced but does not directly alter the underlying business fundamentals.

It’s important to remember:

• Bonus issues and stock splits redistribute share units but do not change the total value of your holdings immediately.
• Buybacks can improve key metrics like EPS and may support the stock price, but they are not guaranteed to increase shareholder wealth if market conditions are weak.

Why Investors Should Care

Understanding corporate actions helps you:

• Know what changes to expect in your shareholding.
• Interpret price movements around the action dates.
• Avoid confusion when the number of shares or prices change “overnight.”

Companies announce corporate actions ahead of time, and exchanges notify investors through corporate filings and notifications. Always check the record date and ex-date to know whether you are eligible for any benefits.

Final Thoughts

Corporate actions like bonus issues, stock splits, and buybacks are routine but impactful events in the life of a public company. They don’t change the company’s business model or earnings potential but do affect how ownership is structured and perceived in the market.

As an investor, familiarising yourself with these mechanics helps you stay informed, avoid surprises, and make better decisions when such actions are announced.