(Excerpt from my book "Psychology and Investment")
·
Whether every bonus announcement is good for the
shareholders?
·
For some stocks it is good and for some of them
prices are unable to perform, what is the reason?
A company should declare bonus when its
business is growing and there is a genuine demand for its shares among the
shareholders. Post bonus, the company's equity base increases, proportionally
stock price decreases and it encourages retail participation.
When a company announces bonuses unnecessarily or
just for financial gimmicks, the demand-supply mismatch of shares leads to a fall
in prices, and if the company is not able to expand the business, the demand
for shares will not increase, and prices will not go up due to excess supply of
shares. Such a move would become a nightmare for the shareholders who bought
the stock only because of the bonus announcement.
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