Bonus and rights issues can be manipulated for insiders' benefit. Every investor needs to be aware of this possibility.
The value of an individual share depends on two factors:
- The value of the company as a whole and
- the number of shares of that company which is outstanding.
Investors in the rest of the world have understood this principle. Elsewhere, a bonus issue or a share split is treated as a non-event and nobody ever gets excited about it. At the ex-bonus date, the price automatically adjusts downward such that the value of the whole company remains the same.
Why do some local newspaper commentators and speculators go on insiting that a bonus issue is an event of great advantage?
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