Stock Splits are Not Dead: Implications of Reappearing Stock Splits

Abstract

We document that stock splits have not disappeared, but they are recently reappearing. This paper posits that firms in recent years in particular have been splitting their stocks to attract attention from investors and customers. We show that stock liquidity significantly goes up while the firm's sales grow significantly after the stock split. Interestingly, smaller and less institutionally-owned firms benefit more from the positive liquidity effect and sales growth effect while large and more institutionally-owned firms attract more retail investors' trading. Such heterogenous effects of stock splits are more pronounced for more recent samples. Finally, the abnormal stock return around the announcement and the market-adjusted return during the quarters after the split are significantly positive, but more positive for smaller and less institutionally-owned firms. Interestingly, however, for more recent years the positive market-adjusted returns are significantly more pronounced for larger and more institutionally-owned firms.

Keywords: Attention, Liquidity, Net Sales, Retail Investors, Institutional Ownership, Stock Splits