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Stock Splits and Bond Yields: Isolating the Signaling Hypothesis

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Author Info

  • David Michayluk
  • Ruoyun Zhao

Abstract

One explanation offered for stock splits is that the split signals positive information by reducing the stock price range in expectation of improved future prospects. Price declines also lead to changes in stock price dynamics, but related securities are not subject to these other changes and therefore can be used to provide a separate assessment of the markets' interpretation of the split. We examine corporate bond issues around stock splits and find a significant decline in the bond yield spread following stock splits, supporting the signaling hypothesis. We also confirm improvements in forecasted and realized earnings subsequent to stock splits. Copyright (c) 2010, The Eastern Finance Association.

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File URL: http://www.blackwell-synergy.com/doi/abs/10.1111/j.1540-6288.2010.00252.x
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Bibliographic Info

Article provided by Eastern Finance Association in its journal Financial Review.

Volume (Year): 45 (2010)
Issue (Month): 2 (05)
Pages: 375-386

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Handle: RePEc:bla:finrev:v:45:y:2010:i:2:p:375-386

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Web page: http://www.easternfinance.org/
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Cited by:
  1. Ann Marie Hibbert & Ivelina Pavlova & Joel Barber & Krishnan Dandapani, 2011. "Credit Spread Changes and Equity Volatility: Evidence from Daily Data," The Financial Review, Eastern Finance Association, vol. 46(3), pages 357-383, 08.

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