Investopedia defines a corporate action as, “any event that brings material change to a company and affects its stakeholders, including shareholders and bondholders”
For example a merger, whereby two (or more) separate companies (e.g. Company A and Company B) combine into one larger company (Company AB), is a common form of corporate action (A + B = AB). Other common corporate actions include but are not limited to:
- Demerger: Opposite of merger. AB splits into Company A and Company B.
- Acquisition: Where one company purchases another company. Company A purchases Company B, Company A is larger while company B ceases to exist.
- Return of Capital: Situation where a company returns some of the capital invested by shareholders into the firm. The action results in a decrease in the value of the company by the amount returned and differs from a dividend in that the cash is not paid from profits for a particular period but rather the equity value on the firm’s balance sheet. An example may be when a company sells some of its long term assets (e.g. property) and returns the cash received to shareholders rather than keeping the cash on its balance sheet.