Are Stock Splits Credible Signals? Evidence from Short-Interest Data

Financial Management, Vol. 31, No. 1, Spring 2002

Pace University Finance Research Paper No. 2002/02

Posted: 16 Apr 2002

See all articles by Padma Kadiyala

Padma Kadiyala

Pace University - Lubin School of Business

Mike Vetsuypens

Southern Methodist University (SMU) - Finance Department

Abstract

We propose the change in short interest as a new metric of the signaling strength of a corporate event. If an event signals positive information, short interest should decline at the event announcement. We study short interest around stock split announcements made by NYSE firms during 1990-94. Short interest does not decline around stock splits, which suggests that the typical split does not convey a positive signal. However, short interest declines for the subset of the sample characterized by favorable industry-adjusted pre-split performance. Short interest increases significantly for firms that experience post-split liquidity improvements.

Suggested Citation

Kadiyala, Padma and Vetsuypens, Michael R., Are Stock Splits Credible Signals? Evidence from Short-Interest Data. Financial Management, Vol. 31, No. 1, Spring 2002, Pace University Finance Research Paper No. 2002/02, Available at SSRN: https://ssrn.com/abstract=300523

Padma Kadiyala

Pace University - Lubin School of Business ( email )

1 Pace Plaza
New York, NY 10038-1502
United States
914-773-3620 (Phone)

Michael R. Vetsuypens (Contact Author)

Southern Methodist University (SMU) - Finance Department ( email )

United States
214-768-2022 (Phone)

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