46 Pages Posted: 26 Mar 2012 Last revised: 4 Nov 2014
Date Written: October 28, 2014
We find that firms are more likely to split their stock if their peer firms have recently done so. The effect is comparable to an increase of 40-50% in the share price. Splitting probability is also increasing in the announcement returns of peer splits. These results are consistent with social learning from peers’ actions and outcomes. The unique features of the setting and various further tests render alternative explanations unlikely. We find no clear benefit in following successful peer splitters. Firms are sometimes suspected to succumb to imitation, and the effect we document may be a case in point.
Keywords: Peer effect, stock splits, social learning
JEL Classification: G19, G39
Suggested Citation: Suggested Citation
Kaustia, Markku and Rantala, Ville, Social Learning and Corporate Peer Effects (October 28, 2014). AFA 2013 San Diego Meetings Paper; Midwest Finance Association 2013 Annual Meeting Paper. Available at SSRN: https://ssrn.com/abstract=2023865 or http://dx.doi.org/10.2139/ssrn.2023865