We measure the postsplit performance of 12,747 stock splits from 1927 to 1996 using two methods to measure abnormal returns: size and book-to-market reference portfolios with bootstrapping, and calendar-time abnormal returns combined with factor models. Between 1927 and 1996, neither method applied to splits 25 percent or larger ¢nds performance signi¢cantly di¡erent from zero. Over selected subperiods, subsamples of 2 -1 splits restricted by book-tomarket availability requirements display positive abnormal returns using some methods. However, these samples show small or negligible abnormal returns using the calendar-time method. Overall, the stock split evidence against market e⁄ciency is neither pervasive nor compelling. THE EFFICIENT-MARKET CONCEPTION of near-perfect capital markets that render only £eeting and nonsystematic gain and loss opportunities to investors has been criticized in recent years by the behavioral ¢nance literature, which o¡ers evidence that stock transactions are often executed (in relation to known events such as stock issues, stock splits, and repurchases) at price levels that imply predictably high or low risk-adjusted returns. If these ¢ndings are factually correct, they pose a challenge to the e⁄cient market hypothesis, which predicts a lack of capital market pro¢t and loss opportunities due to the abilities of investors rapidly and unbiasedly to interpret information according to correct assessments of the underlying economic processes. The behavioral literature attributes its ¢ndings to various investor biases. Supporters of e⁄cient markets de£ate the importance of the behavioral ¢nance ¢ndings by noting that risk-adjustment methods are imperfect, by suggesting that data mining may have occurred, by noting that all the behavioral anomalies taken together suggest an unbiased market at work, and by asking for behavioral models that explain a broader range of evidence (see Fama (1998) for a cogent summary). Haugen (1999Haugen ( , 2002 ably responds from the behavioral camp by pointing out the superior power of capital market phenomena like momentum to predict and explain returns.We believe that certain issues of fact are not yet settled and deserve further examination, one of these being the stock split. Since splits are widely reported and noted, a stock split anomaly would be a particularly £agrant violation of

This paper creates monthly investor sentiment indices for Korea and provides evidence that these indices have the power to predict the subsequent 6‐month buy‐and‐hold returns. In addition, the paper shows that investor sentiment positively affects market response to stock split announcements by using stock splits on the Korea Exchange from 1999 to 2006. First, market response to a stock split announcement is positively related to investor sentiment. Second, market response is more pronounced in high sentiment periods, particularly for small, young, highly volatile, and low profit‐stocks, the valuations of which are highly subjective and difficult to arbitrage. Third, the initial effects of size, age, volatility, and profitability in times of high investor sentiment tend to be reversed over 12‐month post‐split performance. These empirical results imply that the market tends to overreact to stock split announcements for small, young, highly volatile, and low‐profit firms in a high sentiment period but thereafter correct the overvaluation of those firms during the 12‐month post‐split performance. As such, the paper shows how investor sentiment affects the valuation of stocks at a corporate event level.

Managerial overconfidence refers to managers' cognitive bias, according to which they demonstrate unwarranted belief in their own judgments and capabilities. This study provides a new measurement of CEO overconfidence through textual analysis of management discussion and analysis (MD&A) in 10-K documents by making use of the US Securities and Exchange Commission (SEC) EDGAR database. Overconfidence was obtained from "optimism" using the Diction program. From a sample of 19,367 US firms from 1994 to 2016, we found that CEO overconfidence was negatively related to corporate social responsibility (CSR) activities. Since overconfident CEOs are likely to consider CSR activities less important than their own ability, they seem to reduce CSR activities. Also, CSR activities initiated by overconfident CEOs were negatively related to firms' long-term performance. However, CSR activities led to positive long-term performance in firms that were financially constrained. Our findings show that CSR activities undertaken as a result of CEO overconfidence by financially unconstrained firms could be harmful to shareholder value in the long term.Sustainability 2020, 12, 61 2 of 14 CSR activities are diverse and mostly require financial resources, which include community engagement, marketing and advertising, customer relations, workplace health and safety, union relations, human rights policies, product safety and quality, transparency in reporting, governance structure, and environmental protection activities. Chan et al. [14] found that, in general, firms facing financial constraints do not engage in any CSR activities. Zhao and Xiao [15] also found that CSR engagement is negatively correlated with financial constraints. Therefore, if firms face financial constraints with regard to engaging in CSR activities, rigorous CSR activities could be harmful to their long-term performance. We examine the long-term performance of CSR activities initiated by overconfident CEOs, considering financial constraints.Prior research on the impact of a CEO's emotional bias (optimism, loss aversion, overconfidence) and other self-serving bias on corporate strategic decisions included financing decision [16], investments [17], dividend payment [18], cost behavior, and R&D expenditure [19]. This paper tries to examine the impact of CEOs' overconfidence level on CSR activities for the first time. As far as we know, no previous research has investigated the relationships between managerial overconfidence, CSR activities, and financial performance. This research offers a particular qualitative approach in providing a new measurement of CEO overconfidence through computer-assisted textual analysis, by describing and interpreting characteristics of the management discussion and analysis (MD&A). Classified as overconfident or normal, CEOs prefer to choose more or fewer CSR activities, according to their characteristics. The long-term performance of a firm depends on its CSR activities as well as its financial situation. Specifically, if a firm is financial...

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