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Real determinants of stock split announcements

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  • Hu, May
  • Chao, Chi-Chur
  • Malone, Chris
  • Young, Martin

Abstract

This paper examines the aggregate determinants of corporate events of stock splits. The evidence shows that good market conditions drive firms’ decisions to split shares and increase their associated returns, but the dominant effect of macroeconomic factors on stock split announcements is business cycle variations. Firms are most likely to split their shares when they have been experiencing enough excess earnings in economic upturns. This result is more consistent with the Neoclassical Efficiency Hypothesis. This research sheds light on the reasons why we observe corporate events happening in waves and enhance the understanding of why firms split shares at the aggregate level.

Suggested Citation

  • Hu, May & Chao, Chi-Chur & Malone, Chris & Young, Martin, 2017. "Real determinants of stock split announcements," International Review of Economics & Finance, Elsevier, vol. 51(C), pages 574-598.
    • Handle: RePEc:eee:reveco:v:51:y:2017:i:c:p:574-598
    DOI: 10.1016/j.iref.2017.07.027
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    2. Beladi, Hamid & Deng, Jie & Hu, May, 2021. "Cash flow uncertainty, financial constraints and R&D investment," International Review of Financial Analysis, Elsevier, vol. 76(C).
    3. Hu, May & Tuilautala, Mataiasi & Kang, Yuni, 2019. "Bandwagon effect: Special dividend payments," International Review of Economics & Finance, Elsevier, vol. 63(C), pages 339-363.
    4. S. Amir Tabibian & Zhaoyong Zhang & Mohsen Jafarian, 2020. "How Does Split Announcement Affect Stock Liquidity? Evidence from Bursa Malaysia," Risks, MDPI, vol. 8(3), pages 1-14, August.
    5. Podgórski Błażej & Pasierbek Krzysztof, 2020. "The “Magic Action” of Stock Splits: Evidence from the Warsaw Stock Exchange 2003–2017," Journal of Management and Business Administration. Central Europe, Sciendo, vol. 28(1), pages 66-80, March.

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    More about this item

    Keywords

    Market driven; Business cycle; Stock splits;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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