Impact of Corporate Scams on share prices: A study of Indian Stock market

Abstract

We are daily seeing fluctuations in share prices in the stock markets. These fluctuations are due to various reasons. One of the main causes for the fluctuations in share price is due to the Corporate Actions of companies. These corporate actions can influence the shareholders. Shareholders can take the corporate actions in a positive way or negative way. On the basis of Corporate Actions, the investors make a judgment on the future performance of the companies. On the basis of this judgment, investors buy or sell securities. Distributions of dividend/interest, issue of rights/bonus shares, issue of fresh securities by issuers, splits, etc. made by the companies are called corporate actions. Corporate Actions are essential for all companies. An attempt is made in this study to see whether corporate actions influence the share price or not. For this study, 19 companies listed in the NSE were considered and fivecorporate actions were identified. Cumulative Abnormal Return and Z test was used to see the impact of Corporate Actions on Share Price.Overall company analysis shows that more number of positive abnormal returns before corporate action announcement and less abnormal returns after announcement. Hence, it can be stated that market reacts positively before announcement. Z test and Cumulative Abnormal Return proves that corporate action announcement exerts an impact on share price. This study is of immense utility to investors as they can understand changes in share prices of companies and market movement during Dividend, Stock Split, Bonus announcements, Rights issue announcement and Buyback of shares that would be helpful to them for making good portfolio investment decision in the right time.