Corporate Action 101: Understanding Corporate Action


Several times, we have heard or read about corporate actions by a company. But, what exactly is a corporate action?


When a company calls for a corporate action, it sets off a process that will cause a change to its stock. It is also important and necessary to know a company’s chosen corporate action, as there are various types.

What is a corporate action?

As stated above, corporate actions are any event that results in a change to a company. It usually has a material impact on its stockholders, common and preferred, as well as bondholders.

Investors must clearly understand what a corporate action is suggesting about a company’s financial state and how will it affect its share price and performance.

By learning this, investors will be able to decide whether to buy or sell the stock being considered.
Corporate actions are generally approved by the company’s board of directors. Shareholders could also vote on some occasions.

Types of Corporate Actions

Stock Splits

Also known as a bonus share, a stock split divides each of the company’s outstanding shares. The amount of those shares is then elevated by a particular multiple, while the price per share drops by the corresponding factor of the multiple.

This is done to introduce liquidity and to lower share prices for investors unable to acquire those shares previously due to high prices.  

Cash Dividends

Cash dividend is a common as well as a straightforward type of corporate action. Cash dividends are simply cash payments made to the shareholders of the company.


For each share an investor holds, a specific amount of money is allocated to each shareholder. If an investor has 100 shares and the board of directors announces a $0.10 dividend per share, then the investor will obtain an overall of $10.

Mergers and Acquisitions (M&A)

A merger occurs when two companies join together to form one new entity, while all participants involved mutually agree to the conditions of the merge.

An acquisition, on the other hand, is when one company purchases another business. The buying corporation will then be given the choice to either absorb it into the parent organization, or run it as a subsidiary.

The outcome of both actions are the same, but the relationship between the two companies may differ depending on the merger or acquisition that took place.
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