Post-split underreaction: The importance of prior split history

Walker, Scott

doi:10.1016/j.irfa.2021.101945

Cited by 2 publications

(5 citation statements)

References 38 publications

Supporting

Mentioning

Contrasting

Order By: Relevance

“…Regarding the effect of stock splits on liquidity, previous empirical evidence is also mixed, both in the short-term and in the medium-term, being reported positive relations (Dennis, 2003;Lin et al, 2009;Rudnicki, 2012;Seguro et al, 2020), negative relations (Desai et al, 1998;Huang et al, 2013;Lamoureux & Poon, 1987;Yagüe & Gómez-Sala, 2005) and nonsignificant relations (Alves & Alves, 2001;Pecchioli, 2012;Walker, 2021). That said, it is possible to verify that, in general, both reverse stock splits and stock splits manage to capture the attention of investors, thus contributing to the increase of stock marketability.…”

Section: Reverse Stock Splits and Liquiditymentioning

confidence: 94%

Reverse stock splits effects on the liquidity of European stocks

Antúnes

Oliveira

2023

EJABM

View full text Add to dashboard Cite

Purpose: It is common that firms listed at undesirably low prices perform reverse stock splits to increase prices while decreasing the number of shares outstanding. In addition to these impacts, it is important to understand whether this operation has any side effects on the liquidity, as this is a fundamental element for the proper functioning of the financial markets. Therefore, our main goal is to analyze the effect that reverse stock splits have on the liquidity of European stocks. Methodology: To analyze the effect on the liquidity of the 30 firms, members of the STOXX Europe 600 index, which performed the 35 reverse stock splits identified between January 1, 2015, and December 31, 2019, we use the event study methodology and parametric and non-parametric tests. The analysis is done with a short-term (1 month) and a medium-term (6 months) event windows and to measure liquidity we use the turnover ratio and Liu’s (2006) LMx measure. Findings: In the short-term analysis, reverse stock splits contribute to increasing firms’ stock liquidity. In the medium-term analysis, it is not possible to draw a clear conclusion on the effects of reverse stock split on stock liquidity. Practical implications: The results have important implications for investors wishing to acquire shares in firms on the verge of executing this operation, as it clarifies the behavior of liquidity after the reverse stock split, which may influence their investment decision. They also contribute to helping the boards of directors of listed firms in the decision-making process. Originality/value: This work contributes to the financial literature on the relationship between reverse stock splits and liquidity, and to a better knowledge of European markets. Keywords: reverse stock splits, liquidity, Europe.

show abstract

Section: Reverse Stock Splits and Liquiditymentioning

confidence: 94%

Reverse stock splits effects on the liquidity of European stocks

Antúnes

Oliveira

2023

EJABM

View full text Add to dashboard Cite

show abstract

“…Empirical studies have traditionally focused on evaluating the effects of stock split announcements, and the evidence points to a significant increase in returns after these announcements. Evidence shows a significant increase in post-announcement returns (McNichols and Dravid, 1990;Brown et al, 1995;Ikenberry et al, 1996;Ikenberry and Ramnath, 2002;Walker, 2021). This effect is observed not only in the stock market but also in the options market (Gharghori et al, 2021) and analyst forecasts (Payne and Thomas, 2003).…”

Section: Stock and Reverse Splitsmentioning

confidence: 96%

“…However, long-term abnormal returns are positively associated with increases in company dividends. Walker (2021) showed that half of the companies that split their stocks announced new divisions. However, Walker (2021) states that the success of this strategy assumes that all events announced by the company will exhibit an underreaction, regardless of their number.…”

Section: Market Reaction To Stock Splitmentioning

confidence: 99%

“…The explanation for the multiple stock split strategy lies in the signaling hypothesis. Company management will use the events as a way of reporting on the positive outlook, whether from abnormal earnings growth, analysts' earnings expectations or improved future profitability (Huang et al, 2009;Lakonishok and Lev, 2017;Walker, 2021).…”

Section: Market Reaction To Stock Splitmentioning

confidence: 99%

“…Evidence from McNichols and Dravid (1990), Brown et al (1995), Ikenberry et al (1996), Ikenberry and Ramnath (2002), He and Wang (2012), West et al (2020) and Walker (2021) indicates that the market reacts positively to the unfolding of the announcement and the event. Stock prices rise after the split is announced and fall on a reverse split.…”

Section: Hypothesesmentioning

confidence: 99%

See 2 more Smart Citations

Stock splits and reverse splits in the Brazilian capital market

Almeida,

Pimenta Júnior,

Gaio

et al. 2024

JEFAS

View full text Add to dashboard Cite

PurposeThis study aims to evaluate the presence of abnormal returns due to stock splits or reverse stock splits in the Brazilian capital market context.Design/methodology/approachThe event study technique was used on data from 518 events that occurred in a 30-year period (1987–2016), comprising 167 stock splits and 351 reverse stock splits.FindingsThe results revealed the occurrence of abnormal returns around the time the shares began trading stock splits or reverse stock splits at a statistical significance level of 5%. The main conclusion is that stock split and reverse stock split operations represent opportunities for extraordinary gains and may serve as a reference for investment strategies in the Brazilian stock market.Originality/valueThis study innovates by including reverse stock splits, as the existing literature focuses on stock splits, and by testing two distinct “zero” dates that of the ordinary general meeting that approved the share alteration and the “ex” date of the alteration, when the shares were effectively traded, reverse split or split.

show abstract

Post-split underreaction: The importance of prior split history

Cited by 2 publications

References 38 publications

Reverse stock splits effects on the liquidity of European stocks

Reverse stock splits effects on the liquidity of European stocks

Stock splits and reverse splits in the Brazilian capital market

Contact Info

Product

Resources

About