What are corporate actions?
Many people do not know what corporate actions are exactly. It is actually quite simple. These are specific events that are initiated by a company with influence on the stock exchange, and these events have a strong influence on shareholders in an indirect or direct way. An example of such a corporate action is, for example, a notification of the payment of a dividend that has a great effect on the shareholders. An indirect consequence of the dividend payment could be that a stock split makes selling shares much easier.
What you need to know about corporate actions
The board of directors (of a particular company, of course) directs corporate actions and these are legitimized by the shareholders of that particular company.
Examples of corporate actions are stock splits and dividends. Other textbook examples of corporate actions, which are somewhat more stable, are mergers and acquisitions of companies.
It is of utmost importance that you learn to understand how corporate actions work. This will not only give you better financial knowledge, but you will also learn to understand the thinking of various companies. This will give you insight into the consequences of specific corporate actions and what this means for certain companies. Thanks to this additional knowledge, you can decide for yourself whether you want to buy shares in a certain company.
Typen corporate actions
Everyone, including you, experiences certain important events that leave their mark on you and your life. Think of the birth of a child or your own marriage. As an investor in shares, you come into contact with various corporate actions. These are events that can have a very big impact on companies. A number of them are highlighted below.
IPO
All beginnings are difficult, especially when setting up a company there is a lot to consider. If the price of shares rises, you will immediately notice that more companies are going public. The price is then high and you will benefit from that as an investor.
Investors should be on their guard when a company moves towards the stock market. If the prices go through the roof, you will notice it immediately. For example: the profit ratios can sometimes be far above average.
Splitting of shares
Most people who own stocks realize that a stock cannot be interpreted out of context. A stock whose price seems low at first glance is not necessarily less interesting than a stock with a relatively high price. You should not let yourself be distracted too much by the stock price, other factors are also important.
This is one of the causes of stock splits . Companies divide their shares or merge them, that is up to the company itself. In this way, the stock market value fortunately does not change, but the amount you pay for a share is now significantly different.
Share issues
‘Issue’ means that a company issues its shares. The money that these shares yield can be used to increase the equity. A company can play a role in the market here: investing in shares is a big experiment, which can turn out well but sometimes unfortunately not. Many companies like this, because there is now room for a breathing space for the company.
‘Rights issue’ is a specific form of ‘issue’. The shareholders are allowed to buy new shares, but do not have to pay the full price for them. This is therefore very attractive. These potential buyers thus receive claim rights for their new shares. If these claim rights correspond to a specific number, these buyers will later receive the right to buy new shares for another low price.
This arrangement ensures that the stock market gets moving and that the permanent shareholders get less power. The rights issue ensures a new generation of shareholders. The shareholders can also sell their shares if they prefer, the choice is theirs.
A buyer has several choices when there is a rights issue: he can subscribe, he can resell his rights or simply do nothing at all. If an investor does nothing, he has to be careful. The claim rights have an expiration date, and this can expire without the investors noticing. Always stay alert.
There are banks that quickly sell all unused rights before the end approaches, for a special price. The rights, on the other hand, quickly decrease in value, but fortunately everything is arranged so neatly. The money now ends up with the ‘good cause’, so to speak.
Buying own shares
A clever method is to buy your own shares and then sell them to investors with the aim of making a big profit. In reality, it is a method to quickly reduce the value of the shares.
Profit warning
It is and remains a difficult task to estimate what the prices will do. A way that makes it somewhat easier for investors is the profit warning. With such a warning it is crystal clear: the prices are going down sharply. After all, such a warning means that the company officially announces that the profits will be lower than initially expected.
Takeover bid
Companies always try to pursue profit growth and will go to great lengths to achieve this. Acquisitions can have a positive or extremely negative effect on the value of your shares. It does not matter whether the company is going to be acquired in the near future or is planning to do this itself with another company.
You don’t necessarily have to agree with the bid and accept it. It is especially important that you are aware of the bidding process.
Moreover, it is not self-evident that a Dutch company will simply be taken over in one go. There are various factors that can prevent a company from simply being taken over or significantly reduce the chance of a takeover.
Dividing the company
Companies that divide or split up often have their reasons for doing so. These sub-companies can sometimes continue independently (possibly under a specific parent company). This is all to the advantage of the shareholder. Do take into account that a bank can charge a higher rate for the shareholder because of certain administrative transactions.
