Stock Splits and Bond Yields: Isolating the Signaling Hypothesis
University of Technology, Sydney; Centre for International Finance and Regulation (CIFR); Financial Research Network (FIRN)
University of Toronto - Rotman School of Management
Financial Review, Vol. 45, Issue 2, pp. 375-386, May 2010
One explanation offered for stock splits is that the split signals positive information by reducing the stock price range in expectation of improved future prospects. Price declines also lead to changes in stock price dynamics, but related securities are not subject to these other changes and therefore can be used to provide a separate assessment of the markets’ interpretation of the split. We examine corporate bond issues around stock splits and find a significant decline in the bond yield spread following stock splits, supporting the signaling hypothesis. We also confirm improvements in forecasted and realized earnings subsequent to stock splits.
Number of Pages in PDF File: 12Accepted Paper Series
Date posted: April 12, 2010
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