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Liquidity changes around bonus and rights issue announcements: Evidence from manufacturing and service sectors in India

Madhuri Malhotra, Thenmozhi M. and Arun Kumar Gopalaswamy

MPRA Paper from University Library of Munich, Germany

Abstract: This paper examines the stock price liquidity changes before and after the bonus and rights issue announcements. Liquidity measured using raw trading volume ratio, relative trading volume ratio and liquidity ratio suggest that raw trading volume and relative trading volume have decreased around bonus and rights announcements. Market depth, as measured by the liquidity ratio, has significantly decreased after the bonus and rights issue announcement in the Indian stock market. There is evidence of negative and significant decrease in stock price liquidity for bonus and rights issue announcements similar to other issue announcements in US, UK and other emerging economies. The results support cash substitution hypothesis and signaling theory but rejects liquidity hypothesis with respect to bonus and rights issue announcements.

Keywords: Keywords: Bonus Issue; Rights Issue; Signaling Theory; Liquidity; Cash Substitution hypothesis (search for similar items in EconPapers)
JEL-codes: G1 G12 G3 (search for similar items in EconPapers)
Date: 2012-09-11
New Economics Papers: this item is included in nep-mst
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Published in Wealth-International Journal of Money banking and Finance Issue 1.Volume(2012): pp. 28-34

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