Stock Splits, Stock Prices, and Transaction Costs

15 Pages Posted: 9 May 2005

See all articles by Michael Joseph Brennan

Michael Joseph Brennan

USC Gould School of Law

Thomas E. Copeland

University of San Diego - School of Business Administration

Abstract

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

Suggested Citation

Brennan, Michael Joseph and Copeland, Thomas E., Stock Splits, Stock Prices, and Transaction Costs. Journal of Financial Economics, December 1988. Available at SSRN: https://ssrn.com/abstract=717801

Michael Joseph Brennan (Contact Author)

USC Gould School of Law ( email )

699 Exposition Boulevard
Los Angeles, CA 90089
United States

Thomas E. Copeland

University of San Diego - School of Business Administration ( email )

5998 Alcala Park
San Diego, CA 92110-2492
United States

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