What Do Stock Splits Really Signal?
David L. Ikenberry
Leeds School of Business, University of Colorado Boulder; University of Illinois at Urbana-Champaign - Department of Finance
Thunderbird, School of Global Management
Earl K. Stice
Hong Kong University of Science and Technology
J. OF FINANCIAL AND QUANTITATIVE ANALYSIS, September 1996
We observe significant post-split excess returns of 7.93% in the first year and 12.15% in the first three years for a sample of 1,275 two-for-one stock splits. These excess returns follow an announcement return of 3.38%, indicating that the market underreacts to split announcements. The evidence suggests that splits realign prices to a lower trading range, but managers self-select by conditioning the decision to split on expected future performance. Pre-split runup and post-split excess return are inversely related, indicating that our results are not caused by momentum.
JEL Classification: G39Accepted Paper Series
Date posted: November 25, 1996
© 2015 Social Science Electronic Publishing, Inc. All Rights Reserved.
This page was processed by apollo8 in 0.265 seconds