CAPITAL MARKET REACTION AROUND STOCK SPLITS AND BONUS ISSUES:
EVIDENCE FROM INDIAN CAPITAL MARKETComment by Compaq: 1.5 spacing,
16 Upper Case, bold Center, after that single spacing (1 time press
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A dissertation submitted in partial fulfilment of theComment by
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time press Enter) requirements for the award of the degree of
MASTER OF BUSINESS ADMINISTRATIONComment by Compaq: 14 upper
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ByComment by Compaq: 14 Title Case, after that single spacing (1
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NIRMOY DEYComment by Compaq: 14 upper caseRegister No
0920016Comment by Compaq: 14 Title Case. 1.5 spacing, after that 2
spacing (2 time press Enter)
Under the guidance ofComment by Compaq: 14 Sentence case, after
that single spacing (1 time press Enter)
DR ANIRBAN GHATAKComment by Compaq: 14 upper case, after that 2
spacing (2 time press Enter)
Comment by Compaq: Should be the latest logo, Height 1.4, Width
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Institute of ManagementComment by Dr. Anirban Ghatak: This the
Cover Page as well as the 1st page, No Numbering, but should be
counted as (i)Comment by Compaq: Title Case 14, 1.5 spacingChrist
University, BangaloreMarch 2011
DECLARATION Comment by Compaq: Upper 14, after that 2 spaces (2
time press Enter)
I, Nirmoy Dey, do hereby declare that the dissertation entitled
Capital Market Reaction around Stock Splits and Bonus Issues:
Evidence from Some Indian Capital Market has been undertaken by me
for the award of the degree of Master of Business Administration. I
have completed this study under the guidance of Dr Anirban Ghatak,
Assistant Professor, Department of Finance, Institute of
Management, Christ University, Bangalore.Comment by Dr. Anirban
Ghatak: Paragraph should start with 1 tab.Comment by Compaq: 12,
Sentence Case, 1.5 spacing I also declare that this dissertation
has not been submitted for the award of any degree, diploma,
associateship or fellowship or any other title in this University
or any other university.Comment by Dr. Anirban Ghatak: Paragraph
should start with 1 tab.Comment by Compaq: 12, Sentence Case, 1.5
spacing after that 2 spacing (2 time press Enter)
Place: Bangalore (Name & Signature of the Candidate)Date:
Nirmoy DeyRegister No 0920016
ii
CERTIFICATEComment by Compaq: Upper 14, after that 2 spaces(2
time press Enter)
This is to certify that the dissertation submitted by Mr Nirmoy
Dey on the title Capital Market Reaction around Stock Splits and
Bonus Issues: Evidence from Indian Capital Market is a record of
research work done by him during the academic year 2010 11 under my
guidance and supervision in partial fulfillment of Master of
Business Administration. This dissertation has not been submitted
for the award of any degree, diploma, associateship or fellowship
or any other title in this University or any other
university.Comment by Compaq: 12, Sentence Case, 1.5 spacing, after
that 2 spacing(2 time press Enter)
Place: Bangalore(Name & Signature of the Guide)Date: Dr
Anirban Ghatak
iii
ACKNOWLEDGEMENTS Comment by Compaq: Upper 14, after that 2
spaces (2 time press Enter)
I am indebted to many people who helped me accomplish this
dissertation successfully.Comment by Compaq: Paragraph should start
with a tab after that 2 spacing (2 time press Enter)First, I thank
the Vice Chancellor Dr Fr Thomas C Matthew of Christ University for
giving me the opportunity to do my research.I thank Prof. Ghadially
Zoher, Associate Dean, Fr Thomas T V, Director, and Prof T S
Ramachandran, Head-Finance of Christ University Institute of
Management for their kind support. Comment by Dr. Anirban Ghatak:
Students should acknowledge the HOD of the respective streamI thank
Dr Anirban Ghatak, for his support and guidance during the course
of my research. I remember him with much gratitude for his patience
and motivation, but for which I could not have submitted this
work.I thank my parents for their blessings and constant support,
without which this dissertation would not have seen the light of
day.
Nirmoy DeyComment by Compaq: 1.5 spacingRegister No: 0920016
iv
ABSTRACT Comment by Compaq: Upper 14, after that 2 spaces (2
time press Enter)Comment by Dr. Anirban Ghatak: The Abstract will
consist of 6 subheadings (Purpose, Design/methodology/approach,
Findings, Research limitations/implications, Practical
implications, Originality/value. Please dont use subheadings when
the student will write the thesis. Only Key words subheadings
should be used. Key words minimum 3 and Maximum 6 should be
used.
Purpose The thesis aims to clarify the relationship between
organizational structures and individual brand supporting behavior.
It proposes modeling the social transformation process and
outlining why and how leadership is important throughout the
internal brand building process. The study aims to expand the
domain of corporate branding by including a broader range of human
resource and leadership-related aspects than is normally found in
the branding literature. Comment by Dr. Anirban Ghatak: After this
1 spaceDesign/methodology/approach The thesis opted for an
exploratory study using the open-ended approach of grounded theory,
including 30 depth interviews and one expert group discussion with
employees representing middle and senior management having mainly a
marketing and corporate communications background. The data were
complemented by documentary analysis, including brand documents,
descriptions of internal processes, and copies of employee magazine
articles. Findings The thesis provides empirical insights about how
change is brought about during internal brand building. It suggests
that successful leaders act as integrating forces on two levels:
integrating the elements of corporate identity structures, and
mediating between the corporate branding structures and the
individual. Research limitations/implications Because of the chosen
research approach, the research results may lack generalisability.
Therefore, researchers are encouraged to test the proposed
propositions further. Practical implications The thesis includes
implications for the development of a powerful brand image, the
development of brand ambassadors and for managing the balance
between stability and change. Originality/value This thesis
fulfills an identified need to study how brand-supportive behaviour
can be enabled. Keywords: Brand management, Corporate branding,
Leadership, Social change
v
TABLE OF CONTENTSComment by Compaq: Upper 14, after that 1 space
(1 time press Enter)
DeclarationiiComment by Compaq: Roman Nos, after that 1 space.
(1 time press Enter) CertificateiiiAcknowledgementsivAbstractvTable
of ContentsviList of Tables viiiList of Charts ixAbbreviationsx
CHAPTER IINTRODUCTION1.1BACKGROUND OF THE STUDY 11.2NEED AND
RATIONALE OF THE STUDY 31.3PURPOSE OF THE STUDY 41.4SIGNIFICANCE OF
THE STUDY 41.4RESUME OF SUCCEEDING CHAPTERS 5CHAPTER IIREVIEW OF
LITERATURE2.1INTRODUCTION 72.2HOW REVIEW HAS BEEN CONDUCTED
72.3STUDIES CONDUCTED ABROAD102.4STUDIES CONDUCTED IN INDIA162.5
CONCLUSION20CHAPTER IIIRESEARCH
METHODOLOGY3.1INTRODUCTION223.2STATEMENT OF THE
PROBLEM223.3OPERATIONAL DEFINITIONS OF THE VARIABLE UNDER
INVESTIGATION23vi
3.4VARIABLES UNDER INVESTIGATION253.5RESEARCH
QUESTIONS263.6OBJECTIVES OF THE STUDY263.7HYPOTHESES273.8POPULATION
AND SAMPLE OF THE STUDY273.9SAMPLING TECHNIQUE283.10EXPLANATION
ABOUT THE INPUT 28Comment by Dr. Anirban Ghatak: Description of the
Variables. 3.11TOOLS ADOPTED FOR THE STUDY33Comment by Dr. Anirban
Ghatak: Description of the tools used to collect the data.
3.12PILOT TEST AND RELIABILITY OF THE INSTRUMENTS353.13STATISTICAL
TECHNIQUES AND ANALYSIS383.14LIMITATIONS OF THE
STUDY403.15CONCLUSION41CHAPTER IVINDUSTRY OVERVIEW 4.1CAPITAL
MARKET IN INDIA43CHAPTER VDATA ANALYSIS AND INTERPRETATION
4.1INTRODUCTION744.2RESPONDENT PROFILE754.3QUANTITATIVE /
QUALITATIVE ANALYSIS844.4TESTING OF HYPOTHESES85CHAPTER VIFINDINGS,
CONCLUSION AND SUGGESTIONS5.1FINDINGS885.2CONCLUSION
905.3SUGGESTIONS915.4 SUGGESTIONS FOR FURTHER
RESEARCH95BIBLIOGRAPHY97APPENDIX98vii
LIST OF TABLESComment by Compaq: Upper 14, after that 1 space (1
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S No Title Page No Comment by Compaq: Sentence Case 12, after
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Table 4.1Share price performance on stock splits or bonus
issues77
Table 4.2CAAR across different event windows78
Table 4.3Paired t-Test for Pre & Post Bonus Announcement
AAR79
Table 4.4Paired t-Test for Pre & Post Stock Splits
Announcement AAR80
Table 4.5t-value for Cross sectional AR for Event Window (Bonus
Issue)81
Table 4.6t-value for Cross sectional AR for Event Window (Stock
Splits)82
Table 4.7Chi-Square Test Results83
Viii
LIST OF CHARTS Comment by Compaq: Upper 14, after that 1 space
(1 time press Enter)
S No Title Page No Comment by Compaq: Sentence Case 12, after
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4.1CAAR for Bonus Issues48
4.2CAAR for Stock Splits54
4.3Term of investments for the respondents55
4.4Investment Appreciation55
4.5Factors influencing investors decisions56
4.6Source of information for bonus issue or stock split56
4.7Intuition about price movement after bonus issue or stock
split announcement57
4.8Response for no abnormal return around announcements85
4.9Response for investment during announcements85
4.10Response for Insider information leakage85
4.11Response for fundamentals of the company85
4.12Response for liquidity effect after announcements85
4.13Response for alteration of investment strategies85
ixComment by Compaq: Upper 14, after that 1 space (1 time press
Enter)ABBREVIATIONS
ADB Asian Development Bank
ANOVAAnalysis of Variance
ATMAutomated Teller Machine
B2B Business to Business
B2CBusiness to Consumer
BLMarket Value of Firm's Debt
BSEBombay Stock Exchange
CCEACabinet Committee on Economic Affairs
CEOChief Executive Officer
COPCoefficient of Performance
DValue of Used Debt
D/E Debt Equity Ratio
DCDevelopment Commissioner
DESIGN
Design Clinic Scheme for Design Expertise to MSMEs Manufacturing
Sector
x
CHAPTER I Comment by Dr. Anirban Ghatak: No Numbering and
Counting also. Its just a chapter separator.(Font
Algerian-28)INTRODUCTION (Font Algerian-36)(Spacing, before and
after 0, line spacing 0, at-least 0.8, Center, Bold. Upper
Case)(N.B.: This page should not be numbered nor counted)
1.1 BACKGROUND OF THE STUDY Comment by Compaq: Times New Roman
14, Upper Case, Growth of the corporate sector is important in the
process of economic development. Apart from big industries, Small
and Medium Enterprises (SMEs from now on) also contribute to the
expansion of the directly productive sector in the economy,
generating tax revenue for the government, helping poverty
reduction through fiscal transfers and creation of income from
employment as well as ownership of firms. It is imperative for SMEs
in developing countries to be able to finance their activities and
grow over time if they are to play an increasing role in providing
employment and income in terms of wages to households, profits, as
well as dividends to investors. Comment by Dr. Anirban Ghatak:
Paragraph should start after 1 tab.Comment by Dr. Anirban Ghatak:
Paragraph should start after 1 tab.To understand how firms in
developing countries, particularly SMEs, finance their operations,
it is necessary to examine the determinants of their capital
structure and the decisions on finance. A wide range of policy
issues affect the financial decisions of companies. At the macro
level, they have implications for capital market development,
interest rate, security price determination and regulation. At the
micro level, such decisions affect capital structure, corporate
governance and overall development of the company (Green, 2002).
Knowledge about capital structure has mostly been derived from data
pertaining to developed economies that have many institutional
similarities (Booth, Aivazian, Demirguc-Kunt, and Maksimovic,
2001). It is important to note that different countries have
different institutional arrangements, mainly with respect to their
tax and bankruptcy codes, mergers and acquisition and securities
market. There are also differences in social and cultural issues
apart from the levels of economic development. These differences
actually give a warning to take a thorough look at the issue of
(No numbering but will be counted)
CHAPTER IIREVIEW OF LITERATURE
2.1INTRODUCTIONReview of literature is an important link between
the research proposed and the studies already done. It tells us
about aspects that have already been established or concluded by
other authors, and gives a chance to appreciate the evidence that
has been collected by previous research, and thus project the
current research work in the proper perspective. Review of
literature is also important to highlight differences in opinions,
contradictory findings or evidences, and the different explanations
given for their conclusions. In some cases, an analysis of these
factors can help one understand many facets of a complex issue and
at other times such analysis can lead to new possibilities that can
be researched upon in the current project. Sometimes, if the
research proposed by one has already been undertaken earlier, it
provides an option for modifying the work by adding a new
perspective or altering some of the methods of research to obtain a
perspective that will be different from earlier works and thus more
valuable. Occasionally, the work may be an exact repetition of the
work done earlier but with a different set of data or sources of
facts; then the purpose of the research may be just to relate if
the results are similar to earlier works or otherwise. Thus, review
of literature is a very important part of one's research.Over the
past four decades, most of the studies on corporate finance have
rotated around different theories that try to fully explain the
factors behind financing policy and capital structure. These
theories cover various aspects of the firm that can explain how
firms choose their capital structure. The current chapter presents
a comprehensive review of theoretical and empirical literature on
capital structure and finance of SMEs. Section 2.2 covers review of
theoretical literature. Section 2.3 is devoted to theoretical
prediction of variables that have been found by a large
7
CHAPTER IIIRESEARCH METHODOLOGY
3.1INTRODUCTIONResearch is the journey from known to unknown or
from problem to solution. Research methodology refers to the design
of the study method and processes by which data is gathered for a
research project. It includes the blueprint for the collection,
measurement, and analysis of data to achieve the objectives of a
research project. Research methodology is important in a research
work because it specifies the research design. Here the researcher
explicitly defines the operational definitions of the concepts used
in the research and defines the variables that have been included
in the study. Research methodology is also important in a research
work because it also specifies the sampling design. The researcher
also defines the target population and the sampling method used.
The researcher also provides the rationale for choosing a specific
sampling method. Additionally, the researcher identifies the data
collection method. This could be self-administered questionnaires,
postal surveys, or interviews. Finally, the researcher focuses on
the limitations of the research. The researcher identifies
significant methodology or implementation problems such as sampling
errors, response and non response errors and the constraints of
cost and time. This chapter attempts to explain the survey at hand
in terms of the study area, the study unit and the population.
Further, the chapter highlights the organization and design of the
questionnaire as well as the methods of data collection and data
analysis. The data collection instrument employed in the
investigation, the administration of the instrument as well as
their reliability and validity are also described. Finally, the
chapter examines the different statistical tests used to analyze
the gathered data, the reliability, and the validity of the results
as well as the limitations in the collection of the data.
22
CHAPTER IVINDUSTRY OVERVIEW
4.1INTRODUCTIONSMEs are important worldwide and their
contributions are being recognized globally. The influence of SMEs
on the economy is of major importance. In addition to their key
role as providers of employment, they initiate technological
innovation, play a role in the production of new products and the
establishment of new businesses, and support large businesses as
suppliers and subcontractors. Small business is important worldwide
and the World Bank estimates that one of the strongest factors in
the growth of any nations GNP is the presence of SMEs. Today,
widespread efforts are being made in almost all nations to
encourage the development of SMEs. For these reasons, small
businesses deserve much more attention, especially with regard to
management education. It is against this background that the role
of SMEs in the Indian economy is discussed.
4.2INDIAN DEFINITION OF SMEsAccording to the Micro, Small and
Medium Enterprise Development (MSMED) Act, 2006 MSMEs are defined
based on their investment in plant and machinery (for manufacturing
enterprise) and equipment for enterprises providing or rendering
services. The limit on investment for enterprises to be classified
as micro, small and medium enterprises is shown in table 4.1. While
calculating the investment in plant and machinery/equipment, the
original price thereof is taken into account, irrespective of their
new or second hand value. SMEs include Micro, Small and Medium
Enterprises (MSMEs). The definition of Micro, Small and Medium
Enterprises has replaced the existing definition of Small and
Medium Industries and SSSBEs/Tiny Enterprises. Micro Enterprises
include Tiny Industries also.
43
CHAPTER VDATA ANALYSIS AND INTERPRETATION
5.1INTRODUCTIONIn the background of the methodology of the study
outlined in chapter 3 and the overview of Indian SME sector in
chapter 4, the researcher presents a micro analysis of the
determinants of capital structure and finance of SMEs in this
chapter. The plan of the chapter consists of: an analysis of
secondary data in part one; profile of respondents of the sample
survey in part 2; and finally an analysis of primary data in part
3.
5.2SECONDARY DATA ANALYSISFor the present study, secondary data
on manufacturing and service SMEs was accessed from the Prowess
database. Initially by giving the search option in the Prowess data
base adhering to the definitions of an SME as specified in chapter
4 (refer to section 4.2, p. 88) the researcher has obtained
financial statement of 6592 manufacturing and 1798 service-based
SMEs. But due to lack of consistency of those data and keeping in
view the potential variables influencing capital structure, the
relevant data pertaining to 1634 manufacturing and 364 service
SMEs, for a period of 5 years (2006 2010), is used for the study.
The lack of consistency of the data was mainly because of the
following reasons:1. Data gaps in some enterprises;2. Few companies
were new; and3. Some companies had been closed down.Unfortunately,
this drastically reduced the sample available for secondary data
analysis.
5.2.1DESCRIPTIVE STATISTICS OF THE SECONDARY DATA (Times of
Roman 12)The following table depicts the descriptive statistics of
the secondary data of manufacturing and service SMEs.
74
CHAPTER VIFINDINGS, CONCLUSION AND SUGGESTIONS
6.1 INTRODUCTIONIn this chapter the findings from the study are
presented in the light of the proposed research objectives. In the
above background, the theoretical and methodological contributions
made by this study to the existing body of literature are also
presented. Following this the managerial and policy implications of
the study are also highlighted. The chapter then concludes by
presenting the limitations of the present study and suggestions for
future research.
6.2 DISCUSSION OF RESEARCH FINDINGSThe main goal of the study is
to examine the factors that determine the capital structure and
finance of SMEs in the Indian context and assess the applicability
of financial theories of capital structure to SMEs. The study also
sets out to examine whether other theoretical perspectives could be
utilized to explain the capital structure decisions of Indian
SMEs.
6.2.1FINDINGS RELATED TO SMEs CAPITAL STRUCTUREFactors Affecting
SMEs capital Structure From the selected determinants of Capital
Structure of SMEs (profitability, liquidity, NDTS, size, dividend,
growth, investment, uniqueness, government policy, collateral,
default risk and effective tax rate), for both manufacturing and
service SMEs, profitability is found to be the most important
factor. Similarly, for profitability as a determinant at L 1,
industry growth is the common consistent factor among both types of
SMEs at L 2. For liquidity as a determinant of SMEs capital
structure at L 1, for both types of SMEs, debtors turnover is the
most important factor at L 2. It is noted from the study that for
all types of SMEs, leverage is the most consistent factor in the
case of NDTS as a determinant of capital structure.
74
BIBLIOGRAPHY
BIBLIOGRAPHY
Abor, J., & Biekpe, N. (2007). Small business reliance on
bank financing in Ghana. Emerging Markets Finance and Trade, 43(4),
93 - 102.Comment by Dr. Anirban Ghatak: Hanging Indent APA Style
(Refer APA doc)Adedeji, A. (1998). Does the pecking order
hypothesis explain the dividend payout ratios of firms in the UK?
Journal of Business Finance and Accounting, 25(9 & 10), 1127 -
1155.Alan, A., & Danbolt, J. (2000). Capital Structure and its
Determinants in the U.K. Department of Accounting and Finance
University of Glasgow, Working Paper G12 8LE.Alexander, V. D.,
Thomas, H., Cronin, A., Fielding, J., & Moran-Ellis, J. (2008).
Mixed methods. In: Gilbert, N. (Ed.) Researching social life.
London: Sage.Allen, D. E. (1993). The pecking order hypothesis:
Australian evidence. Applied Financial Economics, 3(2),
101-112.Alti, A. (2006). How persistent is the impact of market
timing on capital structure? Journal of Finance, 61, 1681-1710.Ang,
J. S. (1992). On the theory of finance for privately held firms.
The Journal of Small Business Finance, 1(3), 185-203.Ang, J. S.
(1991). Small business uniqueness and the theory of financial
management. The Journal of Small Business Finance, 1(1), 1-13.
APPENDIX
Table & Charts (If Copied/ referred from somewhere
else)Table 2.1: Main elements influencing capital structureComment
by Compaq: 12, single spacingElementsEquity preferenceDebt
preference
Market elementsHigh interest ratesLow interest rates
Scarce financial resourcesCapital very available
Higher stock priceLow stock price
Industry elementsNew industryMature industry
GrowingDeclining
High riskLow risk
Source: Sheehan and Graham, (2001), p. 5.
(Space single, Times of Roman 12), (Source: Times of Roman 10,
Specify the Author, Year and Page)
Chart 4.1: Product groups of MSMEs
Source: MSMEs: Annual Report 2010-11, p. 24.(Space single, Times
of Roman 12), (Source : Times of Roman 10, Specify the Author, Year
and Page)
(If made by own)Table 5.4: ANOVA table for manufacturing and
service SMEsModelSum of SquaresDfMean SquareFp
1Regression15764.014101576.4011800.535.000
Residual1420.96616230.876
Total17184.981633
2Regression15573.39101557.3392539.806.000
Residual216.453530.613
Total15789.84363
Source: Secondary Data. (Specify the data source)