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Reverse Stock Splits, Institutional Holdings, and Share Value
Author(s) -
Chung Kee H.,
Yang Sean
Publication year - 2014
Publication title -
financial management
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.647
H-Index - 68
eISSN - 1755-053X
pISSN - 0046-3892
DOI - 10.1111/fima.12077
Subject(s) - institutional investor , monetary economics , share price , stock price , business , stock (firearms) , value (mathematics) , constraint (computer aided design) , financial economics , economics , finance , stock exchange , corporate governance , mathematics , statistics , mechanical engineering , paleontology , geometry , series (stratigraphy) , engineering , biology
We show that both the number of institutional investors and the percentage of shares that are held by institutional investors increase significantly after reverse splits with a presplit price lower than $5 and a target price higher than $5. This effect is larger than for other comparable reverse splits. These results suggest institutional holdings are affected by the prudent‐person rule and reverse splits are used by firms to alleviate this constraint. We also show that an increase in institutional holdings that results from reverse splits is associated with an increase in share price.