Reverse Stock Splits, Institutional Holdings, and Share Value

Chung, Kee H.; Yang, Sean

doi:10.2139/ssrn.1785774

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Reverse Stock Splits, Institutional Holdings, and Share Value

59 Pages Posted: 15 Mar 2011 Last revised: 11 Oct 2014

See all articles by Kee H. Chung

Kee H. Chung

State University of New York at Buffalo - School of Management

Sean Yang

State University of New York at Buffalo - School of Management

Date Written: October 1, 2014

Abstract

We show that both the number of institutional investors and the percentage of shares that are held by institutional investors increase significantly after reverse splits with a pre-split price lower than $5 and a target price higher than $5. This effect is larger than for other comparable reverse splits. These results suggest institutional holdings are affected by the prudent-person rule and reverse splits are used by firms to alleviate this constraint. We also show that an increase in institutional holdings that results from reverse splits is associated with an increase in share price.

Keywords: Reverse stock split, Institutional investment, Investor base, Prudent-person rule, Fiduciary responsibility

JEL Classification: G20, G30

Suggested Citation: Suggested Citation

Chung, Kee H. and Yang, Sean, Reverse Stock Splits, Institutional Holdings, and Share Value (October 1, 2014). Available at SSRN: https://ssrn.com/abstract=1785774 or http://dx.doi.org/10.2139/ssrn.1785774