There are certain events and actions that are related to the movements of securities of a particular company. When these actions or events are caused by the company itself it is termed as corporation action. These corporation actions influence the security holders of the corporation.
There are several corporation actions that are related directly to the financial health of the investors like payments of coupon or dividend. At the same time, corporation actions like split of stocks affect the investors indirectly because such actions are responsible for price hike of the shares. At the same time, there are some corporation actions that leave no impact on the market.
Different Types of Corporation Actions
There are two different types of corporation actions termed as voluntary corporation action and mandatory corporation action.
Voluntary Corporation Action: In voluntary corporation action, the shareholders of the corporation participate in the company decisions and major events. There are certain actions where the involvements of the shareholders become very important for the corporation to move forward. Actions like tender offer cannot be materialized without response of the stockholders.
Again there are some voluntary corporation actions that offer choices to the shareholder regarding the selection of the type of return. Whenever a cash dividend or stock dividend is paid, the investor can select to take hard cash or to increase his or her shares in the corporation by accepting additional shares. ‘Right issue’ is also a type of voluntary corporation action.
Mandatory Corporation Action: This is a process where the shareholders of the company are bound to take part. The mandatory corporation actions are taken by the management of the corporation. Distribution of cash dividend is a kind of mandatory corporation action. The management takes the decision of dividend distribution and the stockholders hardly play any role to decide the percentage of dividend.
At the same time, the shareholders play the role of a beneficiary or can be termed as passive participant in the mandatory corporation action. Apart from dividend payment there are certain other corporation actions like mergers and splitting of the stocks. In these actions also the shareholders have no role to play.
Last Updated on : 27th June 2013