Stock Market Reactions to the Announcements and Executions of Stock-Splits and Reverse Stock-Split

Abstract

SummaryThe aim of this paper is to analyze the stock market investors reactions to the events of announcement and execution of stock-splits and reverse stock-splits carried out on Warsaw Stock Exchange (WSE) during the period 2004-2012. The study puts the emphasis on the differences between market reactions to standard stock-splits and reverse stock-splits. The results presented in this paper are based on the methodology of event study. The studied data sample consists of 45 instances of stock-splits and 6 instances of reverse stock-splits that took place on WSE in the specified period of time. Results obtained suggest no statistically significant reaction to the events of: split announcement, split execution and reverse split execution and a statistically significant (mostly negative) reaction to the event of reverse split announcement. Although some anomalies can be observed on close inspection of the data, in general the obtained results can be interpreted as evidence of investors' rationality with regards to events connected with stock-splits on the WSE.

The Market Reaction to Stock Splits – Evidence from the Warsaw Stock Exchange

“…The results were similar to the studies by Fiszeder and Mstowska, who recorded positive abnormal rates of return in the period preceding the splits, but it was for a shorter 10-day event (Fiszeder & Mstowska, 2011). The conclusions of the analysis clearly differed from the studies by Kopaczewska or Jamróz and Koronkiewicz, in which the presence of the price effect caused by the split of shares was not confirmed (Kopaczewska, 2004;Jamróz & Koronkiewicz, 2013). However, it should be emphasized that these studies covered a different period and different methods of analysis were used.…”

“…Split research is also undertaken on the Polish market. The obtained results of the analyses in some cases do not confirm the split effect (Kopaczewska, 2004;Jamróz & Koronkiewicz, 2013). Therefore, the author attempted another split analysis based on the latest market data not used in previous research.…”

“…The results of the analysis suggested no statistically significant responses to events despite the observation of some anomalies. According to Jamróz and Koronkiewicz, the rational behavior of investors was dominant in relation to splits (Jamróz & Koronkiewicz, 2013). Okoń and Zaremba studied splits from 1996-2015 by analysing long-term responses.…”