Catering Through Nominal Share Prices Revisited

Critical Finance Review, 2017

37 Pages Posted: 27 Feb 2018

See all articles by Marcos Fabricio Perez

Marcos Fabricio Perez

Wilfrid Laurier University - School of Business & Economics

Andriy Shkilko

Wilfrid Laurier University - Lazaridis School of Business and Economics

Date Written: June 22, 2015

Abstract

Finance research suggests that firms cater to investors’ time-varying preference for low-priced stocks by managing nominal share prices. We show that the existing empirical tests of such catering use highly persistent data that may lead to finding significant relations between variables that are actually independent (spurious regression bias). We revisit the catering hypothesis applying five estimation techniques that reduce the effects of data persistence. Adjusted for persistence, the data offer little evidence that stock splits respond to catering incentives. There is some, although mixed, evidence that catering incentives affect the firms’ choice of the post-split prices and the IPO prices.

Keywords: Stock splits, Nominal share price, Catering

JEL Classification: G20, G39

Suggested Citation

Perez, Marcos Fabricio and Shkilko, Andriy, Catering Through Nominal Share Prices Revisited (June 22, 2015). Critical Finance Review, 2017. Available at SSRN: https://ssrn.com/abstract=3125504

Marcos Fabricio Perez

Wilfrid Laurier University - School of Business & Economics ( email )

Waterloo, Ontario N2L 3C5
CANADA
519-884 0710 (Phone)
519-884 0201 (Fax)

HOME PAGE: http://www.public.asu.edu/~mfperez/

Andriy Shkilko (Contact Author)

Wilfrid Laurier University - Lazaridis School of Business and Economics ( email )

LH 4050
75 University Ave. W.
Waterloo, Ontario N2L3C5
Canada
519.884.0710 ext. 2462 (Phone)
519.884.0201 (Fax)

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