Corporate Actions: Adjustments, Delivery & Deadlines

Instructor: Natalie Boyd

Natalie is a teacher and holds an MA in English Education and is in progress on her PhD in psychology.

When a corporation takes action that will influence the price of the stock, it's important that they meet deadline, notification, and adjustment requirements. To find out what those are, take a look at this lesson.

Corporate Actions

Keisha owns stock in the Elysian Corporation. She's heard rumors that Elysian is planning a corporate action, but Keisha's not sure what that means or what to expect.

A corporate action is something the company does that could impact stock prices. There are many types of corporate actions, including stock splits, dividends, and buybacks. What they all have in common is that they can make the stock price rise or fall, sometimes dramatically.

When a corporate action is taken, adjustments and notices are often required. To help Keisha understand what to expect from the Elysian Corporation, let's take a look at adjustment, notices, and deadlines for corporate actions.

Notices

So far, all Keisha has heard are rumors of corporate action by the Elysian Corporation. How does she know if it's really happening?

Every corporate action requires a notice, but when and how the notice is posted depends on where the stock is sold. Notices and deadlines for corporate actions sold on exchanges are handled by the exchanges themselves. For example, if the Elysian Corporation is traded on the New York Stock Exchange, the NYSE will handle the notice. The NYSE will have deadlines for notices and for the action itself to be completed, as well.

However, if the Elysian Corporation is traded on the Russell or NASDAQ or another exchange, its notice and deadlines will be handled by that exchange and the notice and deadlines will likely be different than if it's on the NYSE.

Exchanges aren't the only way to buy shares in a company, though. Corporations that trade over-the-counter, or OTC, are bought and sold directly between parties instead of on an exchange. For example, an investment bank might sell shares directly to clients instead of offering on a stock exchange. For U.S. securities of corporations that trade OTC, the Financial Industry Regulatory Authority (FINRA) handles the notices and deadlines of corporate action.

Adjustments

After months of rumors, Keisha has finally received a notice that the Elysian Corporation is planning a stock split, which is a type of corporate action. What now?

Some types of corporate action require an adjustment to securities, which is when the share price of a stock is changed based on a formula. The idea behind an adjustment is to keep proportional ownership and/or investment value about the same for shareholders.

The type of adjustment depends on what the corporate action is. For example, the Elysian Corporation is going to do a split, which involves increasing the number of outstanding shares without changing the company's valuation or the investors' proportional ownership. Let's say that Elysian Corporation is going to do a 3-for-1 split. This means that every one share of Elysian will become three shares. So if Keisha owns one share of Elysian, after the split she will own three shares.

But wait! If the company splits the stock, they must also adjust the share price. On a 3-for-1 split, the new stock price will be 1/3 the price of the old stock. So if Keisha's one share is $90 before the split, after the split she'll own three shares valued at $30 each. The adjustment keeps Keisha's investment the same at $90.

But what if the Elysian Corporation decides to do a reverse split? That would mean that the corporation would decrease the number of outstanding shares without changing the company's valuation or the investors' proportional ownership. So imagine if Keisha owned three $30 shares of Elysian and they were going to become one share. That would be a reverse split.

To unlock this lesson you must be a Study.com Member.
Create your account

Register to view this lesson

Are you a student or a teacher?

Unlock Your Education

See for yourself why 30 million people use Study.com

Become a Study.com member and start learning now.
Become a Member  Back
What teachers are saying about Study.com
Try it risk-free for 30 days

Earning College Credit

Did you know… We have over 200 college courses that prepare you to earn credit by exam that is accepted by over 1,500 colleges and universities. You can test out of the first two years of college and save thousands off your degree. Anyone can earn credit-by-exam regardless of age or education level.

To learn more, visit our Earning Credit Page

Transferring credit to the school of your choice

Not sure what college you want to attend yet? Study.com has thousands of articles about every imaginable degree, area of study and career path that can help you find the school that's right for you.

Create an account to start this course today
Try it risk-free for 30 days!
Create An Account
Support