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Stock splits in a neutral transaction cost environment: Evidence from the Athens Stock Exchange

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  • Leledakis, George N.
  • Papaioannou, George J.
  • Travlos, Nickolaos G.
  • Tsangarakis, Nickolaos V.

Abstract

This paper investigates the value consequences of stock splits in a market where institutional characteristics minimize the effects of price realignment and signaling. We find that despite these market conditions, stock splits by Greek firms produce positive price reaction around the announcement day. Further, split factors are directly related to pre-split price levels and deviations from average market prices. Splitting firms also realize earnings improvement which is not reversed after the stock split. Consistent with these findings, market reaction is inversely related to the post-split target price and the size of firm. We interpret this as evidence in support, respectively, of the self-selection and "attention-gathering" hypotheses. As reported in other international studies, there is no evidence of liquidity improvement.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Multinational Financial Management.

Volume (Year): 19 (2009)
Issue (Month): 1 (February)
Pages: 12-25

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Handle: RePEc:eee:mulfin:v:19:y:2009:i:1:p:12-25

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Web page: http://www.elsevier.com/locate/mulfin

Related research

Keywords: Stock splits Market reaction Liquidity Signaling;

References

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  1. Grinblatt, Mark S. & Masulis, Ronald W. & Titman, Sheridan, 1984. "The valuation effects of stock splits and stock dividends," Journal of Financial Economics, Elsevier, vol. 13(4), pages 461-490, December.
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  3. Kryzanowski, Lawrence & Zhang, Hao, 1991. "Valuation effects of Canadian stock split announcements," Economics Letters, Elsevier, vol. 36(3), pages 317-322.
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  7. Ikenberry, David L. & Rankine, Graeme & Stice, Earl K., 1996. "What Do Stock Splits Really Signal?," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 31(03), pages 357-375, September.
  8. Bhattacharya, Utpal & Daouk, Hazem & Jorgenson, Brian & Kehr, Carl-Heinrich, 1998. "When an event is not an event: The curious case of an emerging market," CFS Working Paper Series 1998/12, Center for Financial Studies (CFS).
  9. J. Samuel Baixauli, 2007. "Abnormal Performance In Small Portfolios With Event-Induced Volatility: The Case Of Stock Splits," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 30(1), pages 35-52.
  10. Paul Schultz, 2000. "Stock Splits, Tick Size, and Sponsorship," Journal of Finance, American Finance Association, vol. 55(1), pages 429-450, 02.
  11. Boehmer, Ekkehart & Masumeci, Jim & Poulsen, Annette B., 1991. "Event-study methodology under conditions of event-induced variance," Journal of Financial Economics, Elsevier, vol. 30(2), pages 253-272, December.
  12. Brennan, Michael J. & Copeland, Thomas E., 1988. "Stock splits, stock prices, and transaction costs," Journal of Financial Economics, Elsevier, vol. 22(1), pages 83-101, October.
  13. McNichols, Maureen & Dravid, Ajay, 1990. " Stock Dividends, Stock Splits, and Signaling," Journal of Finance, American Finance Association, vol. 45(3), pages 857-79, July.
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  15. Mikkelson, Wayne H. & Partch, M. Megan, 1988. "Withdrawn Security Offerings," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 23(02), pages 119-133, June.
  16. Copeland, Thomas E, 1979. "Liquidity Changes Following Stock Splits," Journal of Finance, American Finance Association, vol. 34(1), pages 115-41, March.
  17. Crawford, Dean & Franz, Diana R. & Lobo, Gerald J., 2005. "Signaling Managerial Optimism through Stock Dividends and Stock Splits: A Reexamination of the Retained Earnings Hypothesis," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 40(03), pages 531-561, September.
  18. Lakonishok, Josef & Lev, Baruch, 1987. " Stock Splits and Stock Dividends: Why, Who, and When," Journal of Finance, American Finance Association, vol. 42(4), pages 913-32, September.
  19. Fama, Eugene F, et al, 1969. "The Adjustment of Stock Prices to New Information," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 10(1), pages 1-21, February.
  20. Ken L. Bechmann & Johannes Raaballe, 2007. "The Differences Between Stock Splits and Stock Dividends: Evidence on the Retained Earnings Hypothesis," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 34(3-4), pages 574-604.
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Citations

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Cited by:
  1. Yagüe, José & Gómez-Sala, J. Carlos & Poveda-Fuentes, Francisco, 2009. "Stock split size, signaling and earnings management: Evidence from the Spanish market," Global Finance Journal, Elsevier, vol. 20(1), pages 31-47.
  2. Kevin Campbell & Chijioke Ohuocha, 2011. "The stock market reaction to stock dividends in Nigeria and their information content," Managerial Finance, Emerald Group Publishing, vol. 37(3), pages 295-311, March.
  3. Stavroyiannis, S. & Makris, I. & Nikolaidis, V., 2010. "Non-extensive properties, multifractality, and inefficiency degree of the Athens Stock Exchange General Index," International Review of Financial Analysis, Elsevier, vol. 19(1), pages 19-24, January.

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