Institutional Investors and the Information Production Theory of Stock Splits

74 Pages Posted: 17 Mar 2008 Last revised: 28 Apr 2015

See all articles by Thomas J. Chemmanur

Thomas J. Chemmanur

Boston College - Carroll School of Management

Gang Hu

Hong Kong Polytechnic University - School of Accounting and Finance

Jiekun Huang

University of Illinois at Urbana-Champaign - Department of Finance

Date Written: April 28, 2015

Abstract

We make use of a large sample of transaction-level institutional trading data to test an extended version of Brennan and Hughes’ (1991) information production theory of stock splits. We compare brokerage commissions paid by institutional investors before and after a split, assess the private information held by them, and relate the informativeness of their trading to brokerage commissions paid. We show that institutions make abnormal profits net of brokerage commissions by trading in splitting stocks. We also show that the information asymmetry faced by firms goes down after stock splits. Overall, our empirical results support the information production theory.

Keywords: Stock Splits, Brokerage Commissions, Information Production, Institutional Investors

JEL Classification: G32, G24, G14

Suggested Citation

Chemmanur, Thomas J. and Hu, Gang and Huang, Jiekun, Institutional Investors and the Information Production Theory of Stock Splits (April 28, 2015). Journal of Financial and Quantitative Analysis (JFQA), Forthcoming. Available at SSRN: https://ssrn.com/abstract=1098171 or http://dx.doi.org/10.2139/ssrn.1098171

Thomas J. Chemmanur (Contact Author)

Boston College - Carroll School of Management ( email )

Finance Department, 436 Fulton Hall
Carroll School of Management, Boston College
Chestnut Hill, MA 02467-3808
United States
617-552-3980 (Phone)
617-552-0431 (Fax)

HOME PAGE: http://https://www2.bc.edu/thomas-chemmanur/

Gang Hu

Hong Kong Polytechnic University - School of Accounting and Finance ( email )

M1038, Li Ka Shing Tower
Hung Hom, Kowloon
Hong Kong
(852) 3400 8455 (Phone)

HOME PAGE: http://ganghu.org

Jiekun Huang

University of Illinois at Urbana-Champaign - Department of Finance ( email )

1206 South Sixth Street
Champaign, IL 61820
United States

HOME PAGE: http://www.huangjk.info

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