Corporate Actions - Financial world

If you are working in domain of?#investment?#banking?, I am sure you would have heard about the term " Corporate action" even though you may have not worked on it explicitly . There are many actions a company can take that can affect the ownership and investment of the stakeholders. All the action taken by the company that can change dynamics of shareholders or affect them directly or indirectly directly are known as "Corporate actions"

Corporate action can be of two types, mandatory and voluntary corporate actions !! Mandatory corporate action are initiated by Board of directors and shareholder don't have to act on it , example mergers and acquisition and stock splits.

Voluntary corporate action are the one where shareholder approval is required to opt for it . Example : rights issues and open offers.

Il not go into much details about it for each of them as its very vast to put in short however ill touch base on few of them

Right Issue : New shs are offered to existing to shareholders . . Shs are ideally offered discount to current market price . Shareholders needs to understand the reason for the issue whether to opt for it or no . . .

Stock Splits : Total investment remains the same , shs increases and price decreases . For instance , 2:1 split, is 2 shs for every one 1 shs . If previously shs value was $20 and you have 100 shs, post stock split, you will have 200 shs for $10 . Total value of $2,000 will remain the same . . .

Mergers and acquisition : New shs are issued to existing shareholder in the new company or existing one , but then it also varies on the the type of mergers , whether its hostile takeover .

Spin Off : When a company wants to separate an existing business from the current set of business . In this case , shareholders pattern can change as the existing shareholder needs to given new shs , also depends on the type of arrangement agreed .

All the above mentioned are the most common types of corporate action. It can bring positive and negative news based on the reason action are undertaken.

Few points you need to be aware when you reading about corporate actions -

What are mandatory and voluntary corporate actions ?

Various types ?

Why would a company come up with it ?

How does it benefit and risk to all the stakeholders ?

How does the ownership of a shareholder changes?

Effects on bondholders ?

How does the market perceive it ?

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