Stock Splits, Stock Prices, and Transaction Costs
15 Pages Posted: 9 May 2005
We develop a model of stock-split behavior in which the split serves as a costly signal of managers' private information because stock trading costs depend on stock prices. We present empirical evidence confirming the relation between stock trading costs and stock prices. The signaling model is estimated using a large sample of splits and explains a substantial fraction of the split-announcement returns.
Keywords: stock splits, stock prices, transaction costs, stock-split behavior, signaling model
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