Corporate actions and Its Influence on the Stock Investments

What are Corporate Actions?
Corporate actions tend to have a bearing on the price of a security. When a company announces a corporate action, it is initiating a process that will bring actual change to its securities either in terms of number of shares increasing in the hands on the shareholders or a change to the face value of the security or receiving shares of a new company by the shareholders as in the case of merger or acquisition etc. By understanding these different types of processes and their effects, an investor can have a clearer picture of what a corporate action indicates about a company's financial affairs and how that action will influence the company's share price and performance. Corporate actions are typically agreed upon by a company's Board of Directors and authorized by the shareholders. Some examples are dividends, stock splits, rights issues, bonus issues etc.

Dividends:
Dividend is distribution of part of a company's earnings to shareholders, usually twice a year in the form of a final dividend and an interim dividend. Dividend is therefore a source of income for the shareholder.

Stock Split:
A stock split is a corporate action which splits the existing shares of a particular face value into smaller denominations so that the numbers of shares increase, however, the market capitalization or the value of shares held by the investors post split remains the same as that before the split.

Buyback of Shares:
A buyback can be seen as a method for company to invest in itself by buying shares from other investors in the market. Buybacks reduce the number of shares outstanding in the market. Buy back is done by the company with the purpose to improve the liquidity in its shares and enhance the shareholders’ wealth.

These are some of the corporate actions that influence the prices of the stocks in the market.