1. INTRODUCTION
1.1 General Background
There is a positive effect on stock prices when stock split announced, if stock split is according to the situation because of there are two type of stock splits one is forward stock split another is reverse stock split. Therefore, if stock prices are too high then forward stock split applied and if share price is very low than there should be reverse stock split to get positive results as mangers want. After splitting the stock shares volume will increase and but real value of shares will remain the same. According to (Dr. Josiah Omollo Aduda, 2010) There was an increase in the volumes of shares traded when stock Splits were announced. Dhar and Chhaochharia (2008) found that splits occurred at any ratio e.g. 2:1, 3:2, 5:4, 4:3 etc. After applying this ratio (2:1) for split the stock, each shareholder had two times as many shares. (Yang Xiao-Xuan, 2013) investigates the market reaction to stock splits based on China’s companies from 2007 to 2010 using empirical analysis. I find significant positive abnormal returns around the announcement date.
There is a significant impact on stock prices around the announcement date. However, stock split decision by the board of directors to increase the number of shares outstanding by issuing additional shares to the current shareholders. Abnormal returns will increase surrounding the stock split announcement date and the ex-day. There is also an increase in abnormal returns after the ex-day found by the (Wulff, 2002).
It is noticed that after stock split, the number of shares will improved respectively according to the ratio of split. Here is also noticed that companies split the stock when the price is too high or very low. Therefore, its purpose was...
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...emakdej (2007) carried out a research of 100 splits in the Stock Exchange of Thailand and detected significantly negative impact 20 days before and 18 days after the ex-date of the stock split. This was the comparison with other studies that noted positive abnormal returns around the stock split dates. There was also an increase in both the proportion of large shareholders and the number of investors. Trading volumes were found to be lower than before. This study also found the evidence that the systematic risk was lower during the ex-dates but returned to preceding level after the stock split. Another have noted that abnormal returns were found only in the first year after the declaration of the stock. It was also noted that the significant abnormal returns only occurred during the period of 1975-1987 because of lower systematic risk in the New York Stock Exchange.
The attacks of 9/11 resulted in history’s longest stock market shut down since the 1930s. The New York Stock Exchange remained closed for six days after the attacks. Furthermore, Davis (2011) reports that upon reopening, the New York Stock Exchange fell almost seven hundred points, the biggest one day loss in history. Additionally, Jackson (2008) reports a 14% decline in the Dow Jones, a loss the Dow still felt almost a year later. But, it was American Airlines and United Airlines that experienced the greatest loss. Following the reopening of the stock market, American experienced a 39% decline and United experienced a 42% decline (Davis, 2011). However in face of discouraging numbers, Jackson (2008) reports that the U.S. markets rebounded second only to Japan, showing the great economic resilience of the U.S. While the stock markets present a bleak outlook immediately following the attacks, the financial loss is far from reassuring.
It has been said that every good thing must arrive at an end. On account of the Roaring Twenties that end came suddenly and startlingly. It is simple for one to think back upon the monetary circumstance that prompt the accident and disparagement the specialists for not seeing the indications of a potential calamity. Be that as it may, it was not all that simple for them to see such an accident coming. The 1920 's were a blasting decade and stock costs appeared to be at an unfaltering move for an apparently interminable ascent. Numerous elements can be ascribed to the reason for the accident however nobody element can be singled out as the lone reason. The real reasons for the share trading system accident of 1929
In other words, when two firms link to form a new firm, it is called a merger; whereas, when one company buys the other company wherein no new company formation happens it is called acquisition . Technically, coalitions transpire amid two comparable sized companies. Stocks for both the firms are presented and new company’s stocks are issued. For example, when Chrysler and Daimler-Benz merged, a new company called DaimlerChrysler was created. On the contrary, when a purchase happens and the buyer ‘swallows’ the target firm wherein it ceases to tolerate is called an acquisition. How a deal is uttered and whether the buy is hostile or approachable is what determines whether it is trusted as a coalition or an acquisition.
Technology, and the subsequent shift to program trading by computers, has been a major market shift. This has allowed trading volume to skyrocket. The Stock Market Crash of 1987, which saw the Dow plummet 507.99 points or, 22.61% on Oct. 19, 1987, was blamed on program trading that caused investors to rush for the exits in an extreme example of herd behavior. Currently, there has been speculation that flash traders, or investment shops that employ high frequency trading to buy and sell huge amounts of stocks, are creating unusually heavy market volatility (1).
The graph below presents Abercrombie & Fitch, Gap, and NASDAQ Stock Prices from January to September 2005. From May to early August, Gap (in the light blue) continues a constant fluctuation in stock price and stays near the market index (NASDAQ displayed in pink). Gap’s stock price does drop in early May, however it is only a $2 decrease, much less intense than Abercrombie’s price drop. Abercrombie, in the dark blue, follows the mountain figure (significant increase followed by significant decrease in price) during the class action
Disappearing dividends: Changing Firm Characteristics or Lower Propensity to Pay? by Eugene F. Fama started the arguments by revealing the history statistics that the number of firms has been increased in general ever since 1973, while during the period of time between 1973 and 1978, there is relatively more dividend payers, however, the number has been relentlessly decreasing from then, to 20.8% in 1999. Contrarily, the number of non-dividend payers has been growing ever since. Such a great falling percentage raised a crucial question that whether the decrease of paying dividends to shareholders is due to the changing firm characteristics or simply there is less trend to make payments. The paper examined three significant characteristics that are most likely to affect the
The events that unfolded on September 11th and the days that followed also profoundly effected the stock market. It is the purpose of this paper is to examine what happened to both the Dow Jones Industrial Average and the NASDAQ after September 11th and how it is similar to events such as the bombing of Pearl Harbor, the Oklahoma City bombing, and the Gulf War in terms of how the stock market experienced a blow and bounced back after a while.
The stock market is a volatile, unforgiving battleground where fortunes can be made and lost within minutes. The first major stock exchange in the United States, The New York Stock Exchange (NYSE), dates back to 1792 when it acquired its first securities. Since then, the stock sarket has reached an astronomical size, with a market volume of over twenty trillion dollars. This success is not without its setbacks, though. The stock market crashes of 1929 and 2008 have single-handedly led to the worst economic recessions America has ever seen. Considering the sharp ramifications of a market crash, it is important to understand why
Second, the efficient market hypothesis cannot explain market anomalies. These market anomalies include the pricing/earnings effect, the size and January effect, the monthly effect, holiday effect and the weekend effect. These anomalies indicate either market ineffici...
The historical development of the English legal system has created a parallel system where equity operates alongside the common law, emphasizing a system that coherently has distinct legal differences in its application.
Hypothesis (EMH). Efficiency is demonstrated by showing that the market response to an event takes place either before the event or very shortly after the event - information is either anticipated or very quickly assimilated. The pioneering work on event study was done by Ball and Brown (1968) and Fama, Fisher, Jensen and Roll (1969) (henceforth referred to as FFJR). The methodologies used in these studies have become a standard technique for testingThe EMH. Over the last two decades a variety of events such as announcement of stock splits, announcement of earnings, mergers and takeovers have been studied by researchers for examining market efficiency.
I agree to some degree that mergers, acquisitions, hiring and firing of company executives, and allegation of fraud can affect stock price, however, I believe that this affect is minimal and over is gradual. A more direct influence to share value is that of dividends and share bonuses. Dividends, often interpreted as being a direct measure of a company’s profitability when paid by to shareholders, although technically taking from net profit, in effect raise the value of its shares. The only downside to this is while your share value rises, your net profit is lower .
In Microsoft’s 2004 fiscal year, a 33% increase in net income resulted in a 1% increase in stock price. In the 2005 fiscal year, a 2% gain in net income resulted in a 4% decrease in stock price (Microsoft Inc 2006). As seen, an increase in net income does not automatically lead to an increase in stock price. For growth companies such as Microsoft, stock price is primarily driven by the growth of earnings (25 April 2007).
Following the trend of economy, it is important to investors to understand that strong economy creates strong stock market. To elaborate further, as stock prices are increased by current and future expectations of earnings, thus without a strong economy it would be difficult for the companies to increase and sustain their earnings (Kong 2013). The economy development is usually calculated using the gross domestic product of a countries. On the other hand, a change is the stock price can also cause a major impact to the consumers and investors directly. Hence, a loss in confidence by investors can cause a downturn in consumer spending in the long term, which will also affect the economy’s output (Aysen 2011). The graph below shows the relationship of stock market price (KLCI) and the GDP of Malaysia in 2009. Thus, it can be concluded that the economy and the stock market has a positive relationship.
The XYZ Corporation was established in 2004 and their main office is located in Vancouver, BC. The company’s main objective is to create new innovating technology for media devices, computers, and digital music players. They deal with the design, manufacturing and marketing of the products. XYZ Corporation has been providing Canadians with groundbreaking technology throughout the years and continues to create new technology to provide others with top-level technology. Although, recently their success rate has appeared to drop rapidly due to a number of factors that will be explored throughout this case study. Their main objective is to target the problems so that they can work towards having the issues resolved as quickly as possible. If they do not take any course of action, the state of the company may be in extreme danger. This case study is designed to explore the areas of the company and discover the problems blocking the XYZ Corporation from success.