Bonus Share Issues and Announcement Effect in Indonesia Stock
Exchange
Ani Pinayani
Universitas Pendidikan Indonesia, Jl. Dr. Setiabudhi 229, Bandung, Indonesia
ani_pinayani@yahoo.co.id
Keywords: Bonus Share, Trading Volume, Stock Return.
Abstract: The purpose of this study is to find out the bonus effect of stock announcement events on stock trading volume
and stock returns in Indonesia Stock Exchange (IDX). The research method used in this study is event study.
The research population consisted of companies that made the announcement of bonus shares for the period
January 2001 - January 2013, the research sample was selected from 23 companies by using purposive
sampling technique. Data analysis techniques to test the hypothesis using t-test with One-Sample Test, Paired-
Sample Test and One-Way Anova Test. The result of the research shows that (1) The announcement of
bonus shares has no effect the stock trading volume; (2) The announcement of bonus shares has
no effect the stock returns; (3) The average value of trading volume of shares prior to the announcement
of bonus shares is equal to after the announcement of bonus shares; (4) The average return value of shares
prior to the announcement of bonus shares is equal to after the announcement of bonus shares; (5) The average
value of stock trading volume is relatively the same among each industry sector that has announced bonus
shares; (6) The average value of stock returns is relatively the same among each industry sector that has
announced bonus shares.
1 INTRODUCTION
The results of research in Australian, Indian, Chinese,
USA and Indonesia capital markets show some
differences or gaps of research results, among others,
the announcement of bonus shares supports signaling
hypothesis means that the announcement of bonus
shares shows a positive and significant price reaction
by market participants (Balachandran and Tanner,
2001; Lukose and Rao, 2002). While the results of
research Miller and Rock (1985), Mishra (2005),
Suganda (2007) showed that the distribution of bonus
shares provide a negative signal. This indicates that
the publication of bonus shares is considered as an
anticipative measure against the company's bad cash
flow. The announcement of bonus shares based on the
theory described by Miller and Modigliani (1961)
shows that the company does not receive cash flow so
that the company's financial position remains or does
not change.
The results of Barnes and Ma (2002) research on
the influence of bonus stocks on market reaction in
China are counter to Miller and Modigliani theory
(1961) the companies that distribute bonus shares
with small ratios do not affect shareholder wealth
while companies that distribute bonus shares with
medium and large are tend to increase shareholder
wealth.
The results of Ardiansyah’s research (2002)
showed a significant difference between stock trading
volume before and after the announcement of bonus
shares. The market responded negatively to the
announcement of bonus shares indicated by the
average trading volume of shares before the
announcement is greater than the average trading
volume of shares after the announcement of bonus
shares. In the manufacturing industry, the market
does not react to the announcement of bonus shares,
while in the non-manufacturing industry, the market
responds to the announcement negatively and
significantly. Based on the pre-crisis period of 1993-
1997, the market did not react to the announcement
of bonus shares, while in the company that announced
bonus shares in the crisis (1997-1999), the market
showed a significant negative reaction.
The results of Lasrado and Rao research (2009)
show that firms that distribute bonus shares with a
1:1 ratio are significantly reacted by market
participants, while the ratio is 1:2, 2:1, and otherwise
has no significant difference before and after the
announcement of bonus shares.
Pinayani, A.
Bonus Share Issues and Announcement Effect in Indonesia Stock Exchange.
In Proceedings of the 2nd International Conference on Economic Education and Entrepreneurship (ICEEE 2017), pages 105-109
ISBN: 978-989-758-308-7
Copyright © 2017 by SCITEPRESS – Science and Technology Publications, Lda. All rights reserved
105
Signaling hypothesis explains that the
announcement of bonus shares is a positive signal
which is given by management to the public because
the company is considered to have good prospects in
the future (Megginson, 1997). Investors gave a
positive response to the announcement of this bonus
stock with the expectation of a larger return in the
future. There are controversy between the theory with
the results of the research mentioned above, the writer
are interested in conducting further analysis of the
effect of the announcement of bonus shares made by
the company against the capital market reaction,
especially against Volume of stock trading and stock
return on Indonesia Stock Exchange.
Corporate action by sharing bonus shares will
create different interpretations for each market
participant. Bonus share distribution announcements
can have both positive and negative information. The
positive content of information occurs when investors
respond to the information as a good signal because it
assumes that a company with good prospects is able
to distribute bonus shares to its shareholders.
Negative information content occurs because
investors think that companies are not able to
distribute bonuses in the form of cash due to financial
problems which is facing by the company. Corporate
action is the activity of issuers that affected the
number of shares in circulation and the stock price in
the market (Basir and Fakhrudin, 2005).
The purpose of this research is to know (1) The
effect of bonus stock announcement on stock trading
volume and return value of shares in the company that
make announcement of bonus shares during the event
period; (2) The average difference between the stock
trading volume before and after the announcement of
bonus shares; (3) The average difference between
stock returns before and after the announcement of
bonus shares; (4) The differences in the average value
of trading volume of shares of each industry sector
during the period of bonus stock announcement
events; (5) Differences in the average return value of
shares of each industry sector during the period of
bonus stock announcement events.
2 METHODS
The method used in this research is Event Study.
Testing information content is purposed to see the
reaction of an event. If the announcement contains
any information, then the market will react at the time
the announcement is received. Market reaction is
indicated by changes in stock prices. Investors always
use the benchmark return is the comparison between
the current stock price with the previous stock price.
Especially in the event study that studies the specific
event, the benchmark used is the abnormal return.
The population in this study is a company listed on
the Indonesia Stock Exchange which made the
announcement of bonus shares for observation period
from January 2001 to January 2013 as many as 42
companies. Samples of 23 companies were selected
using Purposive Sampling technique. This research
data is secondary data from IDX statistics, daily stock
price list from www.yahoofinance.com, corporate
action schedule from www.ksei.co.id. Data analysis
techniques to test the hypothesis using t-test One-
Sample Test, t-test Paired-Sample Test, and One-
Way Anova Test.
Based on theoretical framework, hypothesis in
this research are as follows:
1. The announcement of bonus shares influences the
stock trading volume.
2. The announcement of bonus shares affect the
stock return.
3. There is an average difference between the stock
trading volume before and after the bonus stock
announcement event.
4. There is an average difference between stock
returns before and after the announcement of
bonus shares.
5. There is a difference in the average value of trading
volume of shares of each industry sector that
announces bonus shares.
6. There is a difference in the average value of stock
returns from each industry sector that announces
bonus shares.
3 RESULTS AND DISCUSSION
3.1 Results Study
The object of this research is a company listed on the
Indonesia Stock Exchange and announcement of
bonus shares during the observation period from
January 2001 to January 2013 of 42 companies.
Based on sample selection which refers to Purposive
Sampling technique, 23 companies are selected as
sample because there are companies that do not meet
the criteria.
Results of hypothesis testing 1 and 2 in Table 1
obtained the value of t -1.119 and -.512 with
significance levels .275 and .614 ( > .05) hypothesis
testing results are not significant meaning the
Table 1: One-Sample Test Trade Volume and Stock Return
t
df
Sig.
Trade Volume
-1.119
22
.275
Stock Return
-.512
22
.614
ICEEE 2017 - 2nd International Conference on Economic Education and Entrepreneurship
106
Information content in the announcement of
bonus shares has no effect on stock trading volume
and stock returns.
Table 2: Paired Samples Test Trade Volume and Stock
Return
Paired Differences
Mean
Sig.
Volume
-7.07 E-2
.328
Return
-1.2 E-3
.906
Results of hypothesis 3 testing in Table 2 obtained
the value of t - 1,000 and the level of significance .328
(> .05). Hypothesis testing is not significant means
there is no difference in average trading volume of
stock before and after the event of bonus stock
announcement. Result of hypothesis test 4 is obtained
t -0,0119 and significance level of .906 (> .05)
means there is no difference of stock return average
before and after bonus bonus announcement event.
Table 3: Anova Trade Volume among Industry Sectors
TVA Saham
Sum of
Squares
F
Sig.
Between Groups
4.543
.995
.428
Within Groups
257.109
Total
261.652
The result of hypothesis testing of 5 in Table 3
obtained the value of F - .995 and significance level
of .428 (> .05), hypothesis test result is not significant
mean that the average value of trading volume of
shares for the seven industrial sectors is identical or
no significant difference The average value of stock
trading volume among the seven industry sectors that
make bonus share announcements.
Results of hypothesis testing 6 in Table 4
obtained value 1.919 and significance level .077 (>
.05), the results of hypothesis testing does not
significantly mean the average value of stock returns
for the seven industrial sectors is identical or no
significant difference in the mean value of return
shares among the seven industry groups announcing
bonus shares.
Table 4: Anova Return Stocks among Industry Sectors
Return Saham
Sum of
Squares
Mean
Square
F
Sig.
Between Groups
.010
.002
1.919
.077
Within Groups
.304
.001
Total
.314
3.2 Discussion
The results of hypothesis testing 1 shows that the
information content in the announcement of bonus
shares has no effect on stock trading volume activity.
Although judging from the average trading volume of
stocks rose and gave a positive signal.
The results of this study do not match the results
of Balachandran and Tanner (2001) research, Lukose
and Rao (2002) that support signaling hyphothesis
that bonus stock announcements show positive and
significant price reactions around the time of
announcements, bonus stock announcements bring
good information to the market.
The results of hypothesis 2 testing shows that the
information content in the announcement of bonus
shares has no effect on the returns. The result of the
average of abnormal return of stock has increased
during the observation period.
The results of this study were counter productive with
Balachandran and Tanner (2001), but in accordance
with Miller and Rock (1985), Mishra (2005) and
Suganda (2007) found that bonus share distribution
gave negative signals. When a company announces
bonus shares, it does not actually change shareholder
value. The announcement of bonus shares based on
the theory described by Miller and Modigliani (1961)
shows that the company does not receive cash flow so
that the company's financial position remains or does
not change. Companies that announce bonus shares
based on this theory are rated negatively by the
public. This indicates that the publication of bonus
shares is considered as an anticipatory action against
the company's bad cash flow.
The result of hypothesis test 3 shows that there is
no difference of average stock trading volume before
and after bonus stock announcement event. This
happens because of the anticipated bonus
announcement event bonus shares by investors.
The results of this study are counter to the results of
Balachandran and Tanner (2001) research, Lukose
and Rao (2002) that support signaling hyphothesis
that bonus stock announcements show a positive and
significant price reaction around the time of the
announcement, bonus stock announcements bringing
good information to the market. Results of this study
also counter with the study Ardiansyah (2002) who
found a significant difference between stock trading
volume before and after the announcement of bonus
shares.
Result of hypothesis 4 test shows that there is no
difference of stock return average between before and
after bonus share announcement event. This happens
because of the investor has anticipated the bonus
Bonus Share Issues and Announcement Effect in Indonesia Stock Exchange
107
shares announcement event. Results of this study are
appropriate and support the research of Miller and
Rock (1985) that the distribution of bonus shares
gives a negative signal. When a company announces
bonus shares, it does not actually change shareholder
value. The announcement of bonus shares based on
the theory described by Miller and Modigliani (1961)
shows that the company does not receive cash flow so
that the company's financial position remains or does
not change. Companies that announce bonus shares
based on this theory are rated negatively by the
public. This indicates that the publication of bonus
shares is considered as an anticipatory action against
the company's bad cash flow. This research is in
accordance with the research of Lasrado and Rao
(2009) found that firms that distributed bonus shares
with a 1: 2, 2: 1 ratio did not have significant
differences before and after the announcement of
bonus shares, while companies that distributed bonus
shares with 1: 1 ratio reacted Significant by market
participants.
Results of hypothesis testing 5 shows that the
average value of stock trading volume is relatively the
same for the seven industrial sectors or there is no
significant difference average value of stock trading
volume among the seven industry sectors that make
the announcement of bonus shares. Results of this
study counter the results of research Balachandran
and Tanner (2001) that supports signaling
hyphothesis that bonus stock announcements show a
positive and significant price reaction around the time
of the announcement, bonus stock announcements
bring good information to the market, bonus stock
announcements bring good information to the market.
The study was conducted in the Australian Capital
Market with a sample of financial firms, non-
financial and mining companies 1992-2000.The
results of this study also counter with the study
Ardiansyah (2002) who found a significant difference
between stock trading volume before and after the
announcement of bonus shares. The market
responded negatively to the announcement of bonus
shares indicated by the average trading volume of
shares before the announcement is greater than the
average trading volume of shares after the
announcement of bonus shares. Results of this study
are in accordance with Ardiansyah (2002) especially
in the manufacturing industry, the market does not
react to the announcement of bonus shares, while in
the non-manufacturing industry, the market responds
to the announcement negatively and significantly.
Results of hypothesis testing 6 indicate that the
average value of stock return is relatively the same for
the seven industry sectors or there is no significant
difference in average stock value among the seven
industry groups that make bonus share
announcements. Results of this study were counter to
the results of Balachandran and Tanner (2001)
research that supported signaling hyphothesis that
bonus stock announcements showed a positive and
significant price reaction around the time of the
announcement, bonus stock announcements brings
good information to the market. The existence of a
positive abnormal return is only for non-financial
companies and mining in contaminated or
uncontaminated conditions. Results of this study fit
and support the research of Ardiansyah (2002) found
that in the manufacturing industry, the market does
not react to the announcement of bonus shares, while
in the non-manufacturing industry, the market
responds to the announcement negatively and
significantly.
4 CONCLUSIONS
The result of the research shows that (1) The
announcement of bonus shares has no effect on stock
trading volume; (2) The announcement of bonus
shares has no effect the stock returns; (3) The
average value of trading volume of shares prior to the
announcement of bonus shares is equal to after the
announcement of bonus shares; (4) The average
return value of shares prior to the announcement of
bonus shares is equal to after the announcement of
bonus shares; (5) The average value of stock trading
volume is relatively the same among each industry
sector that has announced bonus shares; (6) The
average value of stock returns is relatively the same
among each industry sector that has announced bonus
shares.
Based on the limitations of this study, for further
research it is advisable: (1) Extend the observation
period, the longer the observation period, the more
number of companies will be used as research
samples; (2) Group companies that make bonus share
announcements with companies that do not perform
stock splits to compare, in order to more clearly
illustrate the effect of bonus share announcement
decisions; (3) In subsequent research research can be
extended by using research for similar industries only
because similar industries have more similar
properties; (4) Using control variables by dividing the
two economic conditions the pre-crisis period 2007
and the crisis after 2007.
ICEEE 2017 - 2nd International Conference on Economic Education and Entrepreneurship
108
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