Do Stock Splits Really Signal?

34 Pages Posted: 4 Mar 2005 Last revised: 21 Feb 2019

See all articles by Tak Yan Leung

Tak Yan Leung

City University of Hong Kong (CityUHK) - Department of Accountancy

Oliver M. Rui

China Europe International Business School (CEIBS)

Steven Shuye Wang

School of Business, Renmin University of China

Date Written: January 16, 2005

Abstract

Although stock splits seem to be purely cosmetic, there is ample empirical evidence that they are associated with abnormal returns. This study analyzes the effect of stock splits using intraday data and insider trading data in Hong Kong from 1980 to 2000. Consistent with the findings of other countries, we observe positive price reactions in Hong Kong. These positive reactions may be attributable to favorable signals and improved liquidity. We use the abnormal insider trading activity to assess the informativeness of the split signal. We find immaterial trading activities in the two months immediately before the split announcement, and abnormal trading activities in the post-announcement period. Our microstructural analysis shows that stock splits improve corporate liquidity. Regression analysis shows the presence of a possible signaling role for split announcements confounded by increased liquidity.

Keywords: Stock splits, signaling, liquidity

JEL Classification: G12, G15, G32

Suggested Citation

Leung, Tak Yan and Rui, Oliver M. and Wang, Steven Shuye, Do Stock Splits Really Signal? (January 16, 2005). Available at SSRN: https://ssrn.com/abstract=676362 or http://dx.doi.org/10.2139/ssrn.676362

Tak Yan Leung

City University of Hong Kong (CityUHK) - Department of Accountancy ( email )

83 Tat Chee Avenue
Kowloon
Hong Kong
China

Oliver M. Rui

China Europe International Business School (CEIBS) ( email )

699 Hong Feng Road
Pudong
Shanghai 201206
China
86-21-28905618 (Phone)
86-21-28905620 (Fax)

HOME PAGE: http://https://www.ceibs.edu/rui-oliver

Steven Shuye Wang (Contact Author)

School of Business, Renmin University of China ( email )

Beijing
China
8610-6251-8856 (Phone)

HOME PAGE: http://rbs.org.cn

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