The Market Reaction to Stock Split Announcements: Earnings Information After All

39 Pages Posted: 7 Nov 2007 Last revised: 19 Sep 2014

See all articles by Alon Kalay

Alon Kalay

Michigan State University - Eli Broad College of Business

Mathias Kronlund

Tulane University

Date Written: May 10, 2014

Abstract

We re-examine whether the abnormal returns around stock split announcements can be explained by an information hypothesis. Our evidence establishes a link between the abnormal returns and future earnings growth. Analysts revise earnings forecasts by 2.2-2.5% around split announcements, and this revision is significantly larger than that for matched firms. We further show that the earnings information in a split likely arises from the fact that splitting firms experience less mean reversion in their earnings growth relative to matched firms. Consistent with an earnings information hypothesis, the analyst revision and the abnormal returns are stronger for firms with more opaque information environments, and the cross-sectional variation in analyst revisions is related to the variation in abnormal returns.

Keywords: Stock splits, event study, analysts, earnings estimates, information

JEL Classification: G10, G14, G3

Suggested Citation

Kalay, Alon and Kronlund, Mathias, The Market Reaction to Stock Split Announcements: Earnings Information After All (May 10, 2014). Available at SSRN: https://ssrn.com/abstract=1027543 or http://dx.doi.org/10.2139/ssrn.1027543

Alon Kalay

Michigan State University - Eli Broad College of Business

632 Bogue St
East Lansing, MI 48824
United States

Mathias Kronlund (Contact Author)

Tulane University ( email )

7 McAlister Drive
New Orleans, LA 70118
United States

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
1,789
Abstract Views
7,916
rank
9,788
PlumX Metrics