Intra-Industry Reactions to Stock Split Announcements

Abstract

We examine whether favorable information conveyed by stock split announcements transfers to nonsplitting firms within the same industry. On average, nonsplitting firms' shareholders experience significant positive abnormal returns at the stock split announcements of their industry counterparts. In addition, industrywide and firm-specific characteristics are important determinants in explaining nonsplitting firms' stock returns. These firms' earnings increase significantly and the earnings changes are positively related to the stock price reactions. Finally, we find no evidence that investors revise the value of nonsplitting firms because they anticipate a decline in earnings volatility.

JEL Classification: G0, G3