NISM SERIES XV • CHAPTER 9

NISM Series XV Chapter 9 MCQs with Answers: Corporate Actions

Prepare for the NISM Research Analyst Certification Examination with 20 practice MCQs on dividends, rights issues, bonus shares, stock splits, share consolidation, mergers and acquisitions, loan restructuring, buybacks and delisting.

Corporate actions are events initiated by a company that can affect its shareholders, share capital, ownership structure or the value and characteristics of its securities. Understanding these actions helps research analysts evaluate their possible impact on investors and the company.

This chapter covers important concepts from Corporate Actions, including record dates, dividend payments, rights issues, bonus issues, stock splits, mergers and acquisitions, share buybacks and delisting.

20Practice MCQs

4Options per question

AnswersWith explanations

Study tip: Focus on the differences between rights issues and bonus issues, stock splits and share consolidation, and share buybacks and fresh capital issuance. These concepts are especially useful for revision.

Table of Contents

1. Record Dates and Dividends (Q1–Q4)
2. Rights Issues and Bonus Issues (Q5–Q9)
3. Stock Splits, Consolidation and M&A (Q10–Q14)
4. Loan Restructuring, Buybacks and Delisting (Q15–Q19)
5. Share Swap Transactions (Q20)
6. Quick Revision Notes
7. Frequently Asked Questions

Part 1: Record Dates and Dividends

Q1. How is a shareholder's eligibility to receive benefits from a corporate action determined by a company?

1. By checking daily stock exchange trading logs
2. By announcing a record date or book closure period and checking the register of beneficial owners on that date
3. By contacting stockbrokers directly on the execution date
4. By checking physical share certificates held by investors

Show answer and explanation

Correct Answer: B — Record date or book closure period.

A company specifies a record date to determine which shareholders are eligible for a corporate action. For dematerialized securities, eligibility is determined using the relevant depository and company records in accordance with applicable rules and settlement timelines.

Q2. According to the study guide, how should listed companies declare dividends to avoid confusion among investors holding shares with different face values?

1. As a percentage of book value
2. In rupee terms on a per-share basis
3. As a percentage of the current market price
4. As a percentage of enterprise value

Show answer and explanation

Correct Answer: B — In rupee terms per share.

Declaring dividends as an amount per share makes the dividend easier to interpret when companies have different face values. For examination purposes, follow the wording in the study guide and verify current disclosure requirements in the applicable regulations.

Q3. Within how many days of declaration must a company pay a declared dividend to its shareholders under the rule described in the study guide?

1. 15 days
2. 30 days
3. 45 days
4. 60 days

Show answer and explanation

Correct Answer: B — 30 days.

The supplied study material states that a declared dividend must be paid within 30 days. This is a statutory requirement under the relevant Indian company law framework; consult the current legislation and applicable rules for legal use.

Q4. How is the Dividend Payout Ratio calculated in the per-share method presented in the study guide?

1. Dividend per share divided by Current Market Price
2. Dividend per share divided by Earnings per share
3. Dividend per share divided by Book Value per share
4. Total Dividends divided by Total Debt

Show answer and explanation

Correct Answer: B — Dividend per share divided by Earnings per share.

The dividend payout ratio indicates the proportion of earnings distributed to shareholders as dividends. It can be calculated as Dividend per Share divided by Earnings per Share, or Total Dividends divided by Net Profit attributable to shareholders.

Part 2: Rights Issues and Bonus Issues

Q5. When a company offers fresh shares to its existing shareholders in proportion to their holding before approaching new investors, it is making a:

1. Bonus Issue
2. Rights Issue
3. Preferential Allotment
4. Employee Stock Option Plan

Show answer and explanation

Correct Answer: B — Rights Issue.

A rights issue gives existing shareholders the opportunity to subscribe to additional shares, generally in proportion to their existing holdings. It can allow shareholders to maintain their proportional ownership if they exercise their rights, although the applicable offer terms and regulations determine the details.

Q6. What is the term used when an existing shareholder transfers or sells their entitlement under a rights issue to another person?

1. Dematerialization
2. Renunciation of rights
3. Extinguishment
4. Consolidation

Show answer and explanation

Correct Answer: B — Renunciation of rights.

Renunciation means transferring or giving up a rights entitlement in favour of another person, where permitted by the offer terms and applicable rules. The entitlement may be transferred with or without consideration, depending on the transaction.

Q7. For how many days must a rights issue remain open for subscription under the period stated in the study guide?

1. Minimum 7 days, maximum 15 days
2. Minimum 15 days, maximum 30 days
3. Minimum 30 days, maximum 60 days
4. Exactly 45 days

Show answer and explanation

Correct Answer: B — Minimum 15 days and maximum 30 days.

This is the subscription window stated in the supplied study material. Issue-period requirements can depend on the applicable legal and regulatory framework, so check the latest official material when preparing for the current examination.

Q8. An issue of additional shares to existing shareholders without monetary consideration, made by capitalizing eligible free reserves, is known as a:

1. Rights Issue
2. Bonus Issue
3. Share Split
4. Share Swap

Show answer and explanation

Correct Answer: B — Bonus Issue.

A bonus issue distributes additional shares to existing shareholders without requiring them to pay an issue price for those shares. It generally involves capitalizing eligible reserves and does not bring new cash into the company.

Q9. Which type of reserve is not permitted to be used for making a bonus issue according to the study guide?

1. Free reserves created from operational profits
2. Reserves built from revaluation of assets
3. Retained earnings, where eligible under the applicable rules
4. Eligible reserves from realized profits

Show answer and explanation

Correct Answer: B — Reserves created from revaluation of assets.

The study guide states that revaluation reserves cannot be used for a bonus issue. Companies must use only reserves permitted by the applicable company law and regulatory requirements.

Part 3: Stock Splits, Consolidation and Mergers & Acquisitions

Q10. What is the primary operational effect of a Stock Split?

1. The total paid-up capital of the company increases
2. The face value per share is reduced, and the number of outstanding shares increases proportionally
3. The net worth of the company doubles
4. Free reserves are converted into long-term debt

Show answer and explanation

Correct Answer: B — Lower face value and more shares.

A stock split divides existing shares into a larger number of shares with a proportionately lower face value. By itself, the split does not increase the company's total share capital or net worth. The market price per share typically adjusts proportionately, all else equal.

Q11. Why do companies typically consider splitting their shares in the market?

1. To reduce their corporate tax liability
2. To lower high secondary-market share prices and potentially increase liquidity and investor participation
3. To raise fresh capital from foreign institutional investors
4. To avoid paying cash dividends

Show answer and explanation

Correct Answer: B — Improve affordability and potentially liquidity.

A split reduces the nominal price per share, which may make shares accessible to a broader range of investors and support trading activity. A split does not itself increase the underlying value of the business or guarantee higher liquidity.

Q12. Share Consolidation is best described as:

1. Increasing the number of shares while reducing face value
2. Increasing the par value per share in a defined ratio and correspondingly reducing the number of outstanding shares
3. Capitalizing reserves to issue free shares
4. Merging two competing firms into a single corporate entity

Show answer and explanation

Correct Answer: B — Increasing par value and reducing the share count.

Share consolidation is the reverse of a stock split. Multiple shares are combined into fewer shares with a higher face value per share. By itself, consolidation does not change the company's total value or shareholders' proportional ownership.

Q13. In a corporate merger of the type described in the study guide, what happens to the target company?

1. It continues operating as an independent listed company in every case
2. It is absorbed into the acquiring company and ceases to exist as an independent entity
3. It automatically buys back 100% of its own shares
4. It gets converted into a non-banking financial company (NBFC)

Show answer and explanation

Correct Answer: B — It is absorbed into the acquiring company in this type of merger.

In an absorption-style merger, the target's assets and liabilities are transferred to the surviving company, and the target ceases to exist as a separate legal entity. Other transaction structures can have different legal outcomes.

Q14. Which of the following is NOT a typical motive for a Merger & Acquisition (M&A)?

1. Generating operational synergies and economies of scale
2. Increasing revenue and market share
3. Acquiring a loss-making company to potentially obtain a tax benefit, subject to applicable law
4. Automatically eliminating all credit risk on corporate debt

Show answer and explanation

Correct Answer: D — Automatically eliminating all credit risk.

M&A transactions may be motivated by synergies, expansion, market access, diversification or other strategic and financial considerations. They do not automatically eliminate credit risk. Any tax benefit is conditional on the applicable law and transaction structure.

Part 4: Loan Restructuring, Buybacks and Delisting

Q15. What does Loan Restructuring involve for a company in financial distress?

1. Selling equity shares directly on the stock exchange to pay off suppliers
2. Modifying loan terms such as interest rates, tenure or repayment modes with lenders to align with payment capacity
3. Issuing bonus shares to debenture holders
4. Immediately delisting the company's shares from all stock exchanges

Show answer and explanation

Correct Answer: B — Modifying loan terms.

Loan restructuring involves renegotiating agreed borrowing terms with lenders. Changes may include the repayment schedule, interest rate, tenure or other conditions, subject to lender consent and the applicable legal framework.

Q16. Which of the following is a possible financial outcome of a Share Buyback for the remaining shareholders?

1. An immediate dilution of voting rights in every case
2. An increase in Earnings Per Share (EPS) if net profit remains unchanged and the number of shares decreases
3. A reduction in book value per share to zero
4. A mandatory conversion of equity into debentures

Show answer and explanation

Correct Answer: B — EPS may increase when the share count falls.

A buyback reduces the number of outstanding shares. If net profit remains unchanged, EPS can increase because earnings are divided among fewer shares. However, actual EPS and shareholder outcomes depend on the buyback price, funding method, interest effects, taxes and other factors.

Q17. From which source can a company fund a share buyback under the framework described in the study guide?

1. Revaluation reserves
2. Eligible reserves and surplus available with the company
3. Fresh bank loans specifically borrowed for treasury speculation
4. Unpaid dividend accounts

Show answer and explanation

Correct Answer: B — Eligible reserves and surplus.

Company law specifies the permitted sources and conditions for a buyback. These may include eligible free reserves and other permitted sources, subject to statutory restrictions. Revaluation reserves and unpaid dividend accounts should not be assumed to be available for buybacks.

Q18. Once a company buys back its own shares in India, what must it generally do with those shares under the framework described in the study guide?

1. Hold them indefinitely in a treasury account to trade later
2. Extinguish and destroy the bought-back shares within the prescribed timeframe
3. Sell them to foreign portfolio investors at a premium
4. Distribute them as bonus shares to independent directors

Show answer and explanation

Correct Answer: B — Extinguish the bought-back shares.

Under the Indian framework described in the study guide, shares bought back by a company must generally be extinguished and destroyed within the prescribed timeframe rather than retained indefinitely as treasury shares. The exact requirements should be checked against current law.

Q19. What does “Delisting of Shares” mean?

1. Temporary suspension of trading for one business day
2. Removal of a company's shares from listing on a stock exchange
3. Splitting high-value shares into smaller denominations
4. Re-issuing physical share certificates in place of demat holdings

Show answer and explanation

Correct Answer: B — Removal from a stock exchange listing.

Delisting means that a company's securities cease to be listed on the relevant stock exchange. Delisting may be voluntary or compulsory and does not necessarily mean that the company itself ceases to exist.

Part 5: Share Swap Transactions

Q20. In an M&A transaction, what is it called when the acquiring company uses its own stock as consideration to purchase the target business?

1. Rights Renunciation
2. Share Swap
3. Stock Consolidation
4. Preferential Allotment

Show answer and explanation

Correct Answer: B — Share Swap.

In a share swap, shares of one company are exchanged for shares of another company as consideration. In an acquisition, the acquirer may issue its own shares to the target's shareholders under an agreed exchange ratio.

Quick Revision Notes: Chapter 9

Corporate Action	Key Point
Record Date	Determines shareholder eligibility for a corporate action based on the relevant records and applicable settlement rules.
Dividend	A distribution of company profits to shareholders when declared and permitted.
Dividend Payout Ratio	Dividend per Share / Earnings per Share × 100.
Rights Issue	Offers additional shares to existing shareholders, generally in proportion to their holdings.
Renunciation of Rights	Transfer or relinquishment of a rights entitlement where permitted.
Bonus Issue	Additional shares issued to existing shareholders without payment of an issue price.
Revaluation Reserve	Not eligible for funding a bonus issue under the framework described in the study guide.
Stock Split	Face value per share decreases while the number of shares increases proportionately.
Share Consolidation	Fewer shares with a higher face value per share.
Merger	In an absorption-style merger, the target is absorbed by the surviving company.
Loan Restructuring	Loan terms are modified to make repayment more manageable.
Share Buyback	A company repurchases its own shares, reducing the outstanding share count.
Buyback Shares	Generally extinguished within the prescribed timeframe under the Indian framework.
Delisting	Removal of securities from a stock exchange's listing.
Share Swap	Shares of one company are exchanged for shares of another as consideration.

Exam reminder: Corporate-action timelines, eligibility conditions and permitted funding sources are governed by applicable law and regulations. Use the latest official NISM study material for exam-specific wording and verify current rules before relying on a regulatory detail.

Frequently Asked Questions (FAQs)

1. What are corporate actions?

Corporate actions are events initiated by a company that may affect shareholders, share capital, ownership or securities. Examples include dividends, rights issues, bonus issues, stock splits, mergers, buybacks and delisting.

2. What is the difference between a rights issue and a bonus issue?

In a rights issue, eligible existing shareholders are offered additional shares, usually for payment. In a bonus issue, eligible shareholders receive additional shares without paying an issue price, through capitalization of eligible reserves.

3. Does a stock split increase a company's total value?

No. A stock split increases the number of shares and reduces the face value per share proportionately. By itself, it does not change the company's total equity or intrinsic value.

4. Why do companies buy back their shares?

Companies may buy back shares for capital-allocation reasons, to return surplus funds or to change their capital structure. A buyback can affect EPS and ownership percentages, but the outcome depends on the price paid and how the transaction is financed.

5. What is the difference between a stock split and share consolidation?

A stock split increases the number of shares and reduces face value per share. Share consolidation combines shares into fewer shares with a higher face value per share.

6. Are these official NISM examination questions?

These are practice questions based on the supplied Chapter 9 study-guide content. They are intended for revision and should not be represented as official NISM examination questions.

Conclusion

Corporate actions can influence a company's share structure, distribution of profits, ownership and capital allocation. A research analyst should understand the mechanics of each action and assess its potential implications rather than assuming that every corporate action automatically creates value for shareholders.

Revise these 20 MCQs, check the explanations and review the quick revision table before moving on to the next chapter of the NISM Series XV study material.

Continue Your NISM Series XV Preparation

Explore the previous chapters and continue preparing for the Research Analyst Certification Examination.

• Chapter 1: Practice MCQs
• Chapter 2: Practice MCQs with Answers
• Chapter 3: Practice MCQs
• Chapter 4: Fundamentals of Research
• Chapter 5: Economic Analysis
• Chapter 6: Industry Analysis
• Chapter 7: Company Analysis – Qualitative Dimensions
• Chapter 8: Company Analysis – Quantitative Dimensions
• All NISM Series XV Research Analyst MCQs

Disclaimer: This article is intended for educational and examination-preparation purposes only. These practice questions are based on the supplied study-guide content and are not official NISM examination questions. Corporate-action rules and regulatory timelines can change. Refer to the latest official NISM study material, applicable company law and SEBI regulations for current requirements.