Impact of Corporate Actions on Firm Valuation: An Event Study of Selected Indian Automobile Companies

Abstract

In this study, an event study framework will be used to assess the effect of corporate announcement on the value of firms in selected automobile firms in India. The study will be carried out in six automobile firms namely; Maruti Suzuki India Ltd., Mahindra & Mahindra Ltd., Tata Motors Ltd., Eicher Motors Ltd., Ashok Leyland Ltd., and Force Motors Ltd. Four types of corporate actions will be considered in the study including; dividend announcement, bonus issue announcement, stock split announcement, and mergers and acquisitions. Through the use of financial theories including the efficient market hypothesis theory, signaling theory, agency theory, and information asymmetry theory, the effect of corporate announcements on investor perceptions and stock price behavior is explained. The methodology used is a structured event study framework with a 21-day event window and a 120-day estimation window. The study does not utilize real stock price figures but provides illustrative results for abnormal returns, average abnormal return, and cumulative average abnormal return computations. The above findings indicate that mergers & acquisitions create the highest expected market reaction, followed by dividends, whereas bonus issues & stock splits create relatively lower market reactions. The study shows that the informational value and the strength of signals play an important role in influencing the behavior of the investors. The current study adds value to corporate finance literature in the sense that it considers multiple actions of firms under one umbrella.