What Are Benefits of Attracting Gambling Investors? Evidence from Stock Splits in China

52 Pages Posted: 14 Sep 2021

See all articles by Conghui Hu

Conghui Hu

Beijing Normal University, Business School

Ji-Chai Lin

Hong Kong PolyU

Yu-Jane Liu

Peking University - Guanghua School of Management

Date Written: September 12, 2021

Abstract

Analyzing a sample of Chinese firms splitting their stocks via stock dividends and using proprietary trading data to measure investors’ gambling preference, we find that stock splits raise the stocks’ lottery characteristics, making them attractive to gambling investors, who willingly pay higher prices for skewed securities. Split firms also become more risk-taking. Furthermore, their cost of equity declines, largely due to increased gambling investors’ pricing influence. Our findings suggest that firms with weak lottery characteristics and those with inefficient risk sharing, can use stock splits to attract gambling investors to improve risk sharing and to lower their cost of equity.

Keywords: Gambling Preference, Stock Splits, Risk Sharing, Cost of Equity

JEL Classification: G40 and G30

Suggested Citation

Hu, Conghui and Lin, Ji-Chai and Liu, Yu-Jane, What Are Benefits of Attracting Gambling Investors? Evidence from Stock Splits in China (September 12, 2021). Available at SSRN: https://ssrn.com/abstract=3922178 or http://dx.doi.org/10.2139/ssrn.3922178

Conghui Hu (Contact Author)

Beijing Normal University, Business School ( email )

19 Xinjiekou Outer St
Haidian District
Beijing, Beijing 100875
China

Ji-Chai Lin

Hong Kong PolyU ( email )

M715, Li Ka Shing Tower
Hung Hom, Kowloon
China

Yu-Jane Liu

Peking University - Guanghua School of Management ( email )

Beijing
China

Do you want regular updates from SSRN on Twitter?

Paper statistics

Downloads
42
Abstract Views
218
PlumX Metrics