A Comprehensive Overview of Types and Impact Corporate actions are a vital aspect of the corporate world that can have a significant impact on the shareholders of a company. These actions can range from voluntary decisions made by the company's board of directors to mandatory actions required by law.
Voluntary corporate actions include right issues, buybacks, and dividend payouts. A right issue, for instance, is when a company offers its existing shareholders the opportunity to purchase additional shares at a discounted price, which can be a way for the company to raise capital without issuing new shares. Buybacks, on the other hand, occur when a company repurchases its own shares from the open market, which can increase the value of the remaining by reducing the number of outstanding shares. And dividend payouts are regular payments made by a company to its shareholders in cash or stock.
Whereas mandatory corporate actions are required by law. An example of this is a bonus issue, where a company issues additional shares to its shareholders without any additional cost. And stock splits are when a company increases the number of outstanding shares by issuing additional shares to existing shareholders in a proportionate manner, to make the stock more affordable for smaller investors.
In conclusion, understanding the different types of corporate actions is crucial to make the most of your investment.