Market reaction to bonus announcements

The concept of efficiency is central to finance. The term efficiency is used to describe a market in which relevant information is impounded into the prices of financial assets. This paper aims to study the semi-strong form of market efficiency, in the Indian stock market by examining the equity share price reaction to bonus issue announcements. The bonus issues made by National Stock Exchange Listed companies during the financial year 2008–2009 were identified from the Prowess database of Centre for Monitoring Indian Economy (CMIE). We have used event study methodology using the standard ordinary least square market model to define the expected returns and to test the semi-strong form of efficient market on hypothesis. The behaviour of AAR's and CAAR's are examined for 20 days before and 20 days after the bonus issue announcement dates. Further t-statistics is also applied in the study. The results suggest that there are statistically significant abnormal returns during the months up to and including the month of announcement: semi-strong form efficiency is thus observed.