31 Pages Posted: 6 May 2006
Date Written: December 22, 2005
An unusually high number of Nasdaq National Market stocks were reverse split following the decline in Nasdaq prices in the year 2000. We test whether these splits were driven by the overall market decline. We find that the performance of stocks with reverse splits in poor overall stock market conditions is better (less negative) than that in good market conditions, and that the differences in performance appear three to five months after the split. This suggests that the longer-term outcomes of reverse stock splits are associated with the market environment at the time of the split. In view of this, changes that Nasdaq made to relax some of its listing standards are well justified.
Keywords: reverse stock splits, Nasdaq listing requirements
JEL Classification: G14, G32
Suggested Citation: Suggested Citation
Martell, Terrence F. and Webb, Gwendolyn P., The Performance of Stocks that are Reverse Split (December 22, 2005). Available at SSRN: https://ssrn.com/abstract=899326 or http://dx.doi.org/10.2139/ssrn.899326
By Lihua Jing