Long-Run Common Stock Returns Following Stock Splits and Reverse Splits

J. OF BUSINESS, Vol. 70 No. 3, July 1997

Posted: 30 Jul 1997

See all articles by Hemang Desai

Hemang Desai

Southern Methodist University (SMU) - Accounting Department

Prem C. Jain

Georgetown University - Department of Accounting and Business Law

Abstract

We examine one- to three-year performance of common stocks following 5596 stock split and 76 reverse split announcements made during the period 1976 to 1991. For stock splits, on average, the one- and three-year buy-and- hold abnormal after the announcement month are 7.05% and 11.87%, respectively. For reverse splits, the corresponding abnormal returns are - 10.76% and -33.90%. The results suggest that the market underreacts to both the stock split and the reverse split announcements. We also provide evidence that the signal in stock splits is related to change in dividends. In particular, the announcement period and the long-run abnormal returns are both positively associated with an increase in dividends..

JEL Classification: G12, G14

Suggested Citation

Desai, Hemang and Jain, Prem C., Long-Run Common Stock Returns Following Stock Splits and Reverse Splits. J. OF BUSINESS, Vol. 70 No. 3, July 1997. Available at SSRN: https://ssrn.com/abstract=8448

Hemang Desai

Southern Methodist University (SMU) - Accounting Department ( email )

United States
214-768-3185 (Phone)
214-768-4099 (Fax)

Prem C. Jain (Contact Author)

Georgetown University - Department of Accounting and Business Law ( email )

McDonough School of Business
Washington, DC 20057
United States
202-687-2260 (Phone)

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