An analysis of bonus share issues carried out by Maltese listed companies

Abstract

Purpose: The purpose of this study is to analyse bonus share issues carried out by Maltese listed companies in order to assess the rationale, costs involved and benefits, if any, of such actions. Furthermore, it also aims to analyse the current perceptions of financial analysts and fund managers about bonus share issues. Design: Semi-structured interviews were carried out with seven chief financial officers of Maltese listed companies that have carried out a bonus share issue since their listing on the Malta Stock Exchange. Moreover, semi-structured interviews were conducted with seven financial analysts or fund managers. Findings: This study found that the most common reason for carrying out a bonus share issue in the local market is to increase the number of shares in issue. Furthermore all costs involved are minimal and are predominately administrative costs. It also found that shareholders, the company itself and also the local market stand to benefit from such corporate actions. Moreover, the majority of financial analysts and fund managers view bonus share issues positively, and would recommend companies to carry them out in certain circumstances. Conclusion: This study concludes that there is a future for bonus share issues on the local market, and thus one can expect to continue to see such corporate actions carried out on the Malta Stock Exchange. It also concludes that when carried out in the right circumstances bonus share issues do serve a real purpose and shareholders as well as the company itself can benefit from such corporate actions. Value: This study seeks to understand the rationale for carrying out a bonus share issue in the local market. Furthermore it seeks to understand whether such corporate actions are simply a book-keeping exercise or whether they serve a real purpose and whether there is a future for such corporate actions in the local market.