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The Information Content of Multiple Stock Splits
Author(s) -
Huang GowCheng,
Liano Kartono,
Manakyan Herman,
Pan MingShiun
Publication year - 2008
Publication title -
financial review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.621
H-Index - 47
eISSN - 1540-6288
pISSN - 0732-8516
DOI - 10.1111/j.1540-6288.2008.00205.x
Subject(s) - market liquidity , stock (firearms) , monetary economics , econometrics , economics , business , financial economics , engineering , mechanical engineering
We examine the relationship between the frequency of stock splits and firms' motives for splitting their stock. Compared to their peers, infrequent splitters show higher post‐split operating performance, but not so for frequent splitters. We find that split ratio and liquidity change explain the stock split announcement effect for the frequent splitters. In contrast, the change in operating performance in the split year explains the announcement effect for the infrequent splitters. Our results suggest that frequent splits are more consistent with the trading range‐improved/liquidity hypothesis and infrequent splits are more consistent with the signaling hypothesis.