Corporate action

A corporate action is something a company does that changes the securities it has issued, or changes what holders of those securities are entitled to. It's initiated by the company itself, not by the market, and it typically requires the company to notify exchanges, regulators, and shareholders in advance.

Common examples include paying a dividend (a cash payment to shareholders), a stock split (dividing each existing share into more shares, which lowers the price per share without changing what a holder actually owns), a merger or acquisition, a name or ticker change, and a spin-off (where a company separates part of its business into a new, independently traded company). Some corporate actions are "mandatory," meaning every shareholder is affected automatically, like a stock split. Others are "voluntary," meaning a shareholder has to choose whether to participate, like a tender offer to buy back shares at a set price.

The nuance that trips up beginners is that corporate actions can make a chart look like something happened price-wise when nothing economically changed. A 2-for-1 stock split makes the share price on the chart drop by half overnight, and a large dividend payment causes the price to drop by roughly the dividend amount on the "ex-dividend" date. If your charting or backtesting software doesn't adjust historical prices for these events, you can misread a stock as having crashed or rallied when it actually just underwent a routine mechanical adjustment.

Brokers and data providers usually flag corporate actions ahead of time and adjust historical price data afterward, but the exact adjustment methods and timing conventions vary by provider.