Do Stock Splits Signal Future Profitability?

35 Pages Posted: 17 Sep 2002  

Gow-Cheng Huang

Alabama State University - Department of Accounting and Finance

Kartono Liano

Mississippi State University - Department of Finance and Economics

Ming-Shiun Pan

Shippensburg University - Department of Finance and Management Information & Analysis

Date Written: May 2002

Abstract

This study examines whether stock split announcements contain information content about future profitability, measured in terms of future earnings change, future earnings, or future abnormal earnings. Our sample includes 635 split announcements that have both a not-close-to-the-median post split share price and a low split factor. Our empirical results show little evidence that stock splits are positively related to future profitability. In fact, stock splits are in general negatively related to future profitability in subsequent years after the announcement. This negative relation holds regardless of future profitability measure. Therefore, our empirical finding suggests that stock splits are not useful signals of a firm's future earnings prospects.

Keywords: Stock Splits, Signaling, Earnings

JEL Classification: G301

Suggested Citation

Huang, Gow-Cheng and Liano, Kartono and Pan, Ming-Shiun, Do Stock Splits Signal Future Profitability? (May 2002). Available at SSRN: https://ssrn.com/abstract=315440 or http://dx.doi.org/10.2139/ssrn.315440

Gow-Cheng Huang

Alabama State University - Department of Accounting and Finance ( email )

P.O. Box 271
Montgomery, AL 36101-0271
United States
334-229-6920 (Phone)
334-265-0914 (Fax)

Kartono Liano

Mississippi State University - Department of Finance and Economics ( email )

P.O. Box 9580
Mississippi State, MS 39762
United States
601-325-1981 (Phone)
601-325-1977 (Fax)

Ming-Shiun Pan (Contact Author)

Shippensburg University - Department of Finance and Management Information & Analysis ( email )

Shippensburg University
Shippensburg, PA 17257
United States
717-477-1683 (Phone)
717-477-4067 (Fax)

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