Journal
INTERNATIONAL REVIEW OF FINANCIAL ANALYSIS
Volume 78, Issue -, Pages -Publisher
ELSEVIER SCIENCE INC
DOI: 10.1016/j.irfa.2021.101945
Keywords
Stock split; Abnormal returns; Multiple events; Liquidity
Categories
Ask authors/readers for more resources
The impact of underreaction following a stock split varies depending on the number of splits that have occurred. While initial splits show abnormal profitability and significant underreaction, subsequent splits demonstrate diminishing profitability and underreaction. The market does not immediately absorb the information content of a split, and there is no significant change in liquidity around each split.
The magnitude of the underreaction following a stock split is different depending on the number of splits that have already occurred. The first three splits are followed by abnormal profitability and significant underreaction, which are outcomes consistent with managers using splits to signal favorable information about the firm's prospects. However, abnormal profitability fails to materialize and the underreaction gradually dissipates with each subsequent split suggesting the efficacy of a split announcement as a vehicle to convey information is not constant but steadily reduces with each successive split. The underreaction is distinct from any short-term announcement effects and indicates the market does not immediately impound the split's information content. There is no significant change in liquidity around each consecutive split confirming that the underreaction is not explained by microstructure effects. As is the case with other corporate events, the market interprets the content of announcements already made multiple times differently from announcements made less often.
Authors
I am an author on this paper
Click your name to claim this paper and add it to your profile.
Reviews
Recommended
No Data Available