The issue of bonus shares is considered important from an investor's perspective. It is believed to induce an upward revision in expectations regarding future earnings and dividends. To accountants, however, it has no real economic significance. The aim of this article is to find out whether investors actually attach some kind of importance to the announcement of bonus issues or not. This has been studied by tracing the behavior or share returns around the announcement period. The usual event study methodology has been used for this purpose. The results show that investors give less importance to the announcement of bonus issues.

The efficient market hypothesis in its semi-strong form, maintains that as soon as information becomes publicly available, it is absorbed and reflected in stock prices. Even if this is not always the correct response, it will be properly analyzed by the market. However, for news to create any sort of impact in the usual stock prices, there should be sufficient information available.

The issue of bonus shares is considered to be an important event from an investor's perspective; because it is believed that any company, which declares a bonus issue, is expecting an upward revision in expectations regarding future earnings and dividends. Hence, this announcement is perceived as good news by investors. To accountants, though, bonus issues are pure bookkeeping entries, which leave, total liabilities and total assets unchanged and hence, have no real economic significance. To shed more light on these contradictory arguments, this research has been undertaken.

Management Research Journal, Indian Industrial Sector, Empirical Analysis, Market Hypothesis, Center for Monitoring Indian Economy, CMIE, Bombay Stock Exchange, BSE, Securities and Exchange Board of Investigation, SEBI, Indian Industrial Sector, Market Efficiency.