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Liquidity changes around bonus and rights issue announcements: Evidence from manufacturing and service sectors in India

Author

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  • Malhotra, Madhuri Malhotra
  • M., Thenmozhi
  • Gopalaswamy, Arun Kumar

Abstract

This paper examines the stock price liquidity changes before and after the bonus and rights issue announcements. Liquidity measured using raw trading volume ratio, relative trading volume ratio and liquidity ratio suggest that raw trading volume and relative trading volume have decreased around bonus and rights announcements. Market depth, as measured by the liquidity ratio, has significantly decreased after the bonus and rights issue announcement in the Indian stock market. There is evidence of negative and significant decrease in stock price liquidity for bonus and rights issue announcements similar to other issue announcements in US, UK and other emerging economies. The results support cash substitution hypothesis and signaling theory but rejects liquidity hypothesis with respect to bonus and rights issue announcements.

Suggested Citation

  • Malhotra, Madhuri Malhotra & M., Thenmozhi & Gopalaswamy, Arun Kumar, 2012. "Liquidity changes around bonus and rights issue announcements: Evidence from manufacturing and service sectors in India," MPRA Paper 41216, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:41216
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    File URL: https://mpra.ub.uni-muenchen.de/41216/1/MPRA_paper_41216.pdf
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Keywords: Bonus Issue; Rights Issue; Signaling Theory; Liquidity; Cash Substitution hypothesis;

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G3 - Financial Economics - - Corporate Finance and Governance

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