Corporate Actions is 5 marks in NISM Series XV. Small, finite and entirely learnable — which makes it among the cheapest marks in the paper if you spend an hour on it properly.
Almost every question rests on one principle:
A corporate action that changes the number of shares does not change what the shareholder owns.
Hold that and most of the chapter follows.
Dividends
A distribution of profit to shareholders.
The dates matter and are examinable:
- Declaration date — the board announces it.
- Record date — shareholders on the register that day are entitled.
- Ex-dividend date — from this date the share trades without the right to the dividend.
On the ex-dividend date the price typically falls by roughly the dividend amount, because a buyer from that day gets no dividend. The shareholder's wealth is unchanged — part of it has moved from share price into cash in hand.
An interim dividend is declared during the year, a final dividend after the year end. A mature business with limited growth needs typically distributes a large share of its profit, which is exactly the assumption behind dividend discount valuation.
Bonus issue
Free additional shares, funded by capitalising reserves.
- Share count rises, price falls proportionately.
- Face value per share is unchanged.
- The shareholder's total wealth is unchanged.
A 1:1 bonus on a share at Rs 400 leaves you with two shares at roughly Rs 200. You are no richer; you simply hold the same value in more pieces.
Stock split
The existing shares are divided into more shares of lower face value.
- Share count rises, price falls proportionately.
- Face value per share falls — this is the difference from a bonus.
- Wealth unchanged.
Bonus versus split is the most common question in this chapter, and the discriminator is the face value: a bonus leaves it alone, a split reduces it.
Consolidation (reverse split)
The opposite: shares are combined, so the count falls and the price per share rises. Companies consider it when the market price has fallen to a level they consider too low.
Wealth is again unchanged.
Rights issue
New shares offered to existing shareholders in proportion to their holding, usually below the market price, so they can maintain their proportionate stake and avoid dilution.
A shareholder can subscribe, let the rights lapse, or in many cases renounce them. Because the new shares are issued below market, the price adjusts after the issue to a blended level.
Buyback
The company repurchases its own shares.
- Shares outstanding fall.
- Earnings per share rises, because the same profit is divided among fewer shares.
- It returns cash to shareholders, as an alternative to a dividend.
The EPS effect is the one to remember, because it flows straight into the P/E ratio — and questions often chain the two.
Effect on ratios — the table to memorise
| Action | Shares | Price | EPS | Shareholder wealth |
|---|---|---|---|---|
| Dividend | — | Falls by roughly the dividend | — | Unchanged |
| Bonus issue | Rises | Falls proportionately | Falls | Unchanged |
| Stock split | Rises | Falls proportionately | Falls | Unchanged |
| Consolidation | Falls | Rises proportionately | Rises | Unchanged |
| Buyback | Falls | — | Rises | Cash returned |
Why an analyst cares
Historical price and EPS series must be adjusted for bonuses, splits and consolidations, or a comparison across the action is meaningless — a price that halved because of a 1:1 bonus did not fall. Derivative contracts are adjusted for the same reason, so that positions are economically neutral either side of the action.
Study note
This is 5 marks of pure recall. Learn the table above, be able to state the bonus-versus-split distinction, and remember the buyback's effect on EPS. An hour here is worth more than a third hour on valuation.
Practise all 20 Corporate Actions questions free at corporate actions, then take a full-length timed mock.