The Information Content of Multiple Stock Splits
Posted: 14 Sep 2008
Date Written: September 12, 2008
Abstract
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 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.
Keywords: Frequency of stock splits, trading range/liquidity hypothesis, signaling
JEL Classification: G14
Suggested Citation: Suggested Citation