The Announcement Effects of Rights and Bonus Issues on Malaysian Stock Prices

Abstract

‘This study examines stock price behaviour during announcements of share distribution in the form of rights and bonus issues in the Malaysian stock market over the period 1983-01. The study reveals that there is a positive price reaction prior to rights issue announcement, but a significant portion. is immediately lost after the announcement, Analysis on the value of rights further reveals that market reacts not to the rights issue per se, but to the information content of the rights announcement, As for bonus issue, the results show that the market reacts strongly and positively to bonus announce- ment. This behaviour is contrary to a rational behaviour in an efficient stock market. Liquidity motive and expected future dividend could be argued as possible explanations for the price run-ups. These however, are quite unlikely duc to already low price of some of the stocks, and the very low dividend yield of Malaysian stocks.