Literature Review
The relationship between bonus issue and share prices has been the subject of much
empirical discussion within the finance literature. Empirical research have shown that
the market generally reacts positively to the announcement of a bonus issue (see for
example, US – Foster & Vickrey (1978), Woolridge (1983), Grinblatt et al (1984), and
McNichols & Dravid (1990); Canada – Masse et al (1997); NZ- Anderson et al (2001);
Sweden – Lijleblom (1989)). The hypothesis that has received strongest support in explaining
the positive market reaction to bonus issue announcements is the signalling hypothesis,
which suggests that ‘the announcement of a bonus issue conveys new information to
the market in instances where managers have asymmetric information’. This hypothesis
has received alm