The Information Content of Stock Splits in the Presence of Contemporaneous Dividend Announcements

Posted: 15 Sep 1999

See all articles by Anand S. Desai

Anand S. Desai

Kansas State University

Mahendrarajah Nimalendran

University of Florida - Department of Finance, Insurance and Real Estate

Subu Venkataraman

Morgan Stanley

Date Written: August 1994

Abstract

In this paper, we analyze the information content of stock splits by examining the market's reaction to the joint announcement of both stock splits and cash dividends. Several authors have suggested that splits are merely vehicles to convey information about either dividends or future earnings. If this were the case, one might expect the simultaneous announcement of the dividend to eliminate the marginal informativeness of the split. To the contrary, we find that even after controlling for the information contained in the dividend announcement, splits convey significant information to the market. We also examine whether both dividends and splits are conveying information about the same underlying attribute of firm value, or whether they are jointly providing information about more than one attribute. To study this issue, we employ latent variable/structural equation models. The analysis suggests that there are, in fact, at least two latent variable that are being signalled by the firm. While the information in dividend announcements leads to a statistically significant market revaluation, there is independent information contained in the split signal, and this information is significant in explaining the market's revaluation as well.

JEL Classification: G14, G30, C30

Suggested Citation

Desai, Anand S. and Nimalendran, Mahendrarajah and Venkataraman, Subu, The Information Content of Stock Splits in the Presence of Contemporaneous Dividend Announcements (August 1994 ). Available at SSRN: https://ssrn.com/abstract=5522

Anand S. Desai

Kansas State University ( email )

110 Calvin Hall
Manhattan, KS 66506
United States
785-532-6892 (Phone)
785-532-7024 (Fax)

Mahendrarajah Nimalendran

University of Florida - Department of Finance, Insurance and Real Estate ( email )

P.O. Box 117168
Gainesville, FL 32611
United States
352-392-9526 (Phone)
352-392-0301 (Fax)

Subu Venkataraman (Contact Author)

Morgan Stanley ( email )

1585 Broadway
New York, NY 10036
United States

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