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 Enter)

A dissertation submitted in partial fulfilment of theComment by Compaq: Single spacing, 14 Sentence case, after that 2 spacing (2 time press Enter) requirements for the award of the degree of

MASTER OF BUSINESS ADMINISTRATIONComment by Compaq: 14 upper case, after that 2 spacing (2 time press Enter)

ByComment by Compaq: 14 Title Case, after that single spacing (1 time press Enter)

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 2.7, after that 3 spacing (3 time press Enter)

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

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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

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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

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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

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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 time press Enter)

S No Title Page No Comment by Compaq: Sentence Case 12, after that 1 space (1 time press Enter)

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

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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 that 1 space (1 time press Enter)

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

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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

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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

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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.

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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.

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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.

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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.

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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)