Corporate actions are those activities that bring about significant change in the organization. These actions are initiated by the public company which will change the capital structure of the organization. The main changes caused are to the debt and equities issued by the company. These actions are bound to cause changes in the share prices of the public company. There can be both positive and negative impacts on the share prices and hence it is important that the investor be aware of how these actions might affect the value of his investments.
Types of corporate actions
Corporate actions can be categorized into two categories – mandatory and voluntary. The mandatory actions are initiated by the board of directors and may not require the action or consent of the shareholders. The mandatory actions may include mergers and acquisitions, stock splits etc.
Voluntary corporate actions, on the other hand, are initiated by the shareholders. These actions cannot be executed without the consent of the shareholders. These include tender offers, Rights Issue and Buybacks.
Under the umbrella of these two categories fall the different types of actions
Conversions – This is when the company aims to convert its securities from one class to another. Investors are more interested in taking part in the company’s long-term appreciation. The public companies may issue preferred stock which does not have ownership rights with the option of converting it into common stock at a later point in time. The Shareholders go in for this arrangement to when there is a rise in the company’s equity value.
Rights Issue – This arrangement is for the existing shareholders who are willing to increase their stake in the company. Additional shares are offered to the shareholders at a discounted price. Companies go in for this option to raise additional capital.
Stock Splits – This corporate action increases the number of shares but does not affect the value. The existing shares of an investor will be doubled if the company announces a 2-1 split. This aims at reducing the share price to attract new investors.
Dividends – Dividends are a part of the profits that are distributed to the shareholders. This is not a fixed payment and depends on the financial conditions of the company. This is initiated by the board of directors.
Mergers and acquisitions – These actions are part of the company’s plan for expansion, diversification or entering new markets. These actions definitely affect the shareholders as it will lead to considerable changes to the financial structure of the company.
The investors need to keep themselves updated on the potential actions the company has planned for. It can affect him both ways. It can lead to an appreciation of the stock or vice versa. The investors can also look in for investment opportunities in the digital assets market as they are less time to consume. The automated trading systems make the idea of investing in cryptocurrencies more lucrative and easy. Bitcoin loophole is one such online trading software that offers trading opportunities for all types of investors irrespective of their financial knowledge. Bitcoin Loophole is not a scam but it is an efficient way to financial prosperity.