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Stock Splits, a Survey

45 Pages Posted: 19 Nov 2009  

Celim Yildizhan

University of Georgia - C. Herman and Mary Virginia Terry College of Business

Date Written: March 17, 2009

Abstract

In this survey paper I summarize the literature's findings on the short-run and long-run effects of stock split announcements as well as what happens in the preceding and subsequent years around a stock split event. I also summarize how firm characteristics influence these results. Furthermore, I discuss the various theories regarding why splits occur and why stock return distributions change subsequent to split events. I specifically focus on the changes in the first and second moments of stock returns and analyze related theories such as optimal trading, optimal tick size, liquidity, and signaling. More importantly I present the pros and cons of each of these theories and discuss which of them are more plausible. I suggest that a combination of the several theories suggested in the literature can rationally explain the return distribution changes around stock splits. I conclude with suggestions for future research.

Keywords: Stock split, stock splits, split ex-date, split announcement, optimal tick size, clientele changes

JEL Classification: G00, G10, G30

Suggested Citation

Yildizhan, Celim, Stock Splits, a Survey (March 17, 2009). Available at SSRN: https://ssrn.com/abstract=1362259 or http://dx.doi.org/10.2139/ssrn.1362259

Celim Yildizhan (Contact Author)

University of Georgia - C. Herman and Mary Virginia Terry College of Business ( email )

Brooks Hall
Athens, GA 30602-6254
United States

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