ExamFinch.com My Study

Study guide

2.2 Corporate Actions

Practice this exam

Securities Industry Essentials SIE

Track your progress as you read

Finished sections get a check mark.

1 Introduction

About the SIE Exam How to Use This Course

2 Chapter 1: Knowledge of Capital Markets

1.1 Regulatory Bodies 1.2 State Regulation 1.3 Market Participants 1.4 Types of Markets 1.5 The Exchanges 1.6 OTC Markets 1.7 Economic Policies 1.8 Interest Rates 1.9 Business Cycles 1.10 International Economics

3 Chapter 2: Understanding Products and Their Risks

2.1 Common Stock Basics 2.2 Corporate Actions 2.3 Preferred Stock 2.4 ADRs 2.5 Bond Basics 2.6 Yields 2.7 U.S. Treasury Securities 2.8 Corporate Bonds 2.9 Municipal Bonds 2.10 Money Market Instruments 2.11 Options Basics 2.12 Hedging Strategies 2.13 Mutual Funds 101 2.14 Mutual Fund Fees 2.15 ETFs 2.16 UITs & REITs 2.17 DPPs 2.18 Systematic Risk 2.19 Non-Systematic Risk 2.20 Mitigation Strategies

4 Chapter 3: Trading, Customer Accounts and Prohibited Activities

3.1 Order Types 3.2 Trade Settlement 3.3 Quoting 3.4 Account Types 3.5 Account Registration 3.6 Retirement Plans 3.7 Education Savings 3.8 AML Rules 3.9 Market Manipulation 3.10 Insider Trading 3.11 Customer Protection

5 Chapter 4: Overview of Regulatory Framework

4.1 Registration 4.2 Continuing Education 4.3 Employee Conduct 4.4 Correspondence

2.2 Corporate Actions

Key Takeaways Explain This Topic AI

Stock splits increase share count while reducing price proportionally, with total value unchanged (e.g., 3-for-1 split: 100 shares at $90 becomes 300 shares at $30)

Under T+1 settlement (since May 2024), the ex-dividend date and record date are usually the same day

Reverse stock splits reduce share count to meet exchange minimums or avoid penny stock status (e.g., 1-for-10: 1,000 shares at $2 becomes 100 shares at $20)

Stock dividends distribute additional shares proportionally and are generally not taxable when received

To receive a dividend, investors must purchase shares before the ex-dividend date; the stock price typically drops by the dividend amount on ex-date

Last updated: October 2026

Companies regularly make decisions that affect their outstanding stock. These corporate actions can change the number of shares you own, the price per share, or the income you receive. Understanding how these actions work is essential for the SIE exam and for anyone working with investors.

What Are Corporate Actions?

Corporate actions are events initiated by a company's board of directors that affect its securities. They can be mandatory (affecting all shareholders automatically) or voluntary (shareholders must choose to participate).

Types of Corporate Actions

  • Action Type Mandatory or Voluntary Typical Purpose
  • Stock dividends Mandatory Reward shareholders without cash outlay
  • Stock splits Mandatory Make shares more accessible to investors
  • Reverse splits Mandatory Increase share price, meet exchange requirements
  • Cash dividends Mandatory Distribute profits to shareholders
  • Rights offerings Voluntary Raise capital, give existing shareholders first opportunity
  • Mergers/acquisitions Varies Combine companies, expand operations
  • Stock Dividends

A stock dividend is a distribution of additional shares to existing shareholders. Instead of paying cash, the company issues new shares proportionally.

How Stock Dividends Work

If a company declares a 10% stock dividend:

  • You owned 100 shares → You now own 110 shares
  • Your percentage ownership stays the same
  • The total market value of your holdings stays approximately the same
  • Each share is worth less because there are more shares outstanding

Important: Stock dividends are generally not taxable when received. You only pay taxes when you sell the shares.

Stock Dividend vs. Cash Dividend

  • Factor Stock Dividend Cash Dividend
  • What you receive Additional shares Cash payment
  • Company cash impact None Reduces cash reserves
  • Your ownership % Same Same
  • Tax treatment Not taxable when received Taxable as ordinary income
  • Price adjustment Share price decreases Share price decreases on ex-date
  • Stock Splits

A stock split increases the number of shares outstanding while proportionally reducing the price per share. The company's total market value remains unchanged.

Forward Stock Splits

Common split ratios and their effects:

  • Split Ratio Shares Before Shares After Price Before Price After
  • 2-for-1 100 200 $80 $40
  • 3-for-1 100 300 $90 $30
  • 3-for-2 100 150 $60 $40

Why Split? Companies split their stock to make shares more affordable for retail investors. A stock trading at $500 may be intimidating for small investors, but after a 5-for-1 split at $100, the same company becomes more accessible.

Calculating Split Results

To calculate shares and price after a split:

  • New shares = Old shares x (first number / second number)
  • New price = Old price x (second number / first number)
  • Example: 200 shares at $150 undergo a 3-for-2 split
  • New shares: 200 x (3/2) = 300 shares
  • New price: $150 x (2/3) = $100 per share
  • Total value before: $30,000 | Total value after: $30,000
  • Reverse Stock Splits

A reverse stock split reduces the number of shares while increasing the price per share. This is the opposite of a forward split.

Why Do Reverse Splits?

Companies typically do reverse splits when:

  • Share price has fallen below exchange minimum requirements
  • They want to attract institutional investors who avoid low-priced stocks
  • They want to improve the company's image (avoid "penny stock" label)
  • Reverse Split Example
  • Reverse Split Shares Before Shares After Price Before Price After
  • 1-for-10 1,000 100 $2 $20
  • 1-for-5 500 100 $3 $15
  • 1-for-4 400 100 $5 $20

Warning Sign: A reverse split is often viewed negatively because it typically occurs when a company's stock price has fallen significantly. While the action itself does not change company value, it can signal underlying problems.

Important Dividend Dates

When a company declares a cash dividend, four key dates determine who receives payment:

The Four Dividend Dates

  • Date What Happens Who Determines
  • Declaration Date Board announces dividend amount and dates Board of directors
  • Ex-Dividend Date First day stock trades without dividend Exchange/FINRA
  • Record Date Company determines shareholders of record Board of directors
  • Payment Date Dividend is actually paid Board of directors
  • The Ex-Dividend Date Rule

Since the U.S. moved to T+1 settlement (May 2024), the ex-dividend date is usually the same day as the record date . Under T+1, trades settle in one business day, so:

  • Buy before ex-date → Receive the dividend (you settle by record date)
  • Buy on or after ex-date → Do NOT receive the dividend

The ex-dividend date is set by FINRA/NYSE based on settlement rules, not by the company.

Price Adjustment: On the ex-dividend date, the stock price typically drops by approximately the dividend amount. This is a technical adjustment reflecting that new buyers will not receive the upcoming payment.

Example Timeline (T+1 Settlement)

  • Event Date Stock Price
  • Declaration November 1 $50.00
  • Ex-dividend / Record November 15 $49.50 (opened down $0.50)
  • Payment November 30 Dividend paid to shareholders of record

Note: Under T+1 settlement, the ex-dividend date for a regular cash dividend is usually the record date itself; if the record date is not a business day, the ex-dividend date is the business day before it. To receive the dividend, buy before the ex-dividend date. Dividends of 25% or more of the stock's value follow special rules.

Rights Offerings

A rights offering gives existing shareholders the right to purchase additional shares at a discounted price before a public offering.

  • How Rights Work
  • Company announces rights offering
  • Existing shareholders receive rights (typically 1 right per share owned)
  • A certain number of rights plus cash allows purchase of new shares
  • Rights are often transferable—can be sold to others
  • Rights have an expiration date
  • Rights Example
  • Rights ratio: 5 rights + $40 = 1 new share
  • Current market price: $50
  • Subscription price: $40 (the discount)
  • You own 500 shares → You receive 500 rights → You can buy 100 new shares at $40
  • Key Takeaways
  • Stock dividends and splits change share count but not total value
  • Forward splits make shares more affordable; reverse splits increase price
  • The ex-dividend date determines who receives dividends
  • Rights offerings let existing shareholders buy shares at a discount
  • Always calculate the impact on shares, price, and total value