Why Stock Splits? Evidence from Institutional Ownership

Posted: 25 Sep 1999

See all articles by Samuel H. Szewczyk

Samuel H. Szewczyk

Drexel University - Department of Finance

George P. Tsetsekos

Drexel University - Department of Finance

Abstract

This study examines the motives for stock splits in the context of the announcing firm's institutional ownership. We report an inverse relationship between the magnitude of announcement period abnormal returns and the percentage of the firm's institutional ownership, indicating that stock splits are more valuable to firms with low institutional ownership. Results also suggest that the motivation for initiating stock splits is not uniform across firms; rather it is contingent upon the firm's pre-split institutional ownership. Firms with low pre-split institutional ownership experience significant increases in the number of institutional shareholders following stock splits. In contrast, firms with high pre-split institutional ownership stabilize the proportion of their shares owned by institutions following stock splits. Overall the evidence suggests that announcements of stock splits attract the attention of financial analysts to undervalued firms and induce changes in post-split institutional ownership.

JEL Classification: D21

Suggested Citation

Szewczyk, Samuel H. and Tsetsekos, George P., Why Stock Splits? Evidence from Institutional Ownership. Available at SSRN: https://ssrn.com/abstract=6409

Samuel H. Szewczyk

Drexel University - Department of Finance ( email )

LeBow College of Business
Philadelphia, PA 19104
United States
215-895-1746 (Phone)

George P. Tsetsekos (Contact Author)

Drexel University - Department of Finance ( email )

College of Business
Philadelphia, PA 19104
United States
215-895-1741 (Phone)
215-895-2955 (Fax)

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