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Stock splits: motivations and valuation effects in the Spanish market

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Author Info
Susana Menéndez () (Universidad de Oviedo)
Silvia Gómez-Ansón () (Universidad de Oviedo)

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Abstract

This study analyzes the motivations and valuation effects of stock splits in a "medium-sized market" such as the Spanish market. Our findings suggest that splitting firms present a pre-split stock price above the normal trading range, and that, after the split, the number of transactions and the average transaction size increase significantly. Moreover, positive abnormal returns are observed around announcement dates and around the ex-date. For the latter, however, these positive wealth effects are outweighed by the negative abnormal returns observed closely afterwards. Our findings suggest that the liquidity, or optimal trading range hypothesis, prevails over other hypotheses as an explanation for stock splits in the Spanish market. (Copyright: Fundación SEPI)

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File URL: ftp://ftp.funep.es/InvEcon/paperArchive/Sep2003/v27i3a2.pdf
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Publisher Info
Article provided by Fundación SEPI in its journal Investigaciones Economicas.

Volume (Year): 27 (2003)
Issue (Month): 3 (September)
Pages: 459-490
Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
Handle: RePEc:iec:inveco:v:27:y:2003:i:3:p:459-490

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Postal: Investigaciones Economicas Fundación SEPI Quintana, 2 (planta 3) 28008 Madrid Spain
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Related research
Keywords: Split; signal; liquidity; event-study.;

Find related papers by JEL classification:
G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies
G35 - Financial Economics - - Corporate Finance and Governance - - - Payout Policy

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. Gonzalo Rubio & Mikel Tapia, 1996. "Adverse selection, volume and transactions around dividend announcements in a continuous auction system," European Financial Management, Blackwell Publishing Ltd, vol. 2(1), pages 39-67. [Downloadable!] (restricted)
  2. Gary Gorton & Frank A. Schmid, 1996. "Universal Banking and the Performance of German Firms," NBER Working Papers 5453, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  3. Dodd, Peter & Warner, Jerold B., 1983. "On corporate governance : A study of proxy contests," Journal of Financial Economics, Elsevier, vol. 11(1-4), pages 401-438, April. [Downloadable!] (restricted)
  4. 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. [Downloadable!] (restricted)
  5. C. Wulff, . "The Market Reaction to Stock Splits - Evidence from Germany -," Sonderforschungsbereich 373 1999-42, Humboldt Universitaet Berlin.
  6. Rankine, Graeme & Stice, Earl K., 1997. "The Market Reaction to the Choice of Accounting Method for Stock Splits and Large Stock Dividends," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 32(02), pages 161-182, June. [Downloadable!]
  7. 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. [Downloadable!] (restricted)
  8. 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. [Downloadable!] (restricted)
  9. Lamoureux, Christopher G & Poon, Percy, 1987. " The Market Reaction to Stock Splits," Journal of Finance, American Finance Association, vol. 42(5), pages 1347-70, December. [Downloadable!] (restricted)
  10. Conrad, Jennifer S & Conroy, Robert, 1994. " Market Microstructure and the Ex-date Return," Journal of Finance, American Finance Association, vol. 49(4), pages 1507-19, September. [Downloadable!] (restricted)
  11. 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. [Downloadable!] (restricted)
  12. Cable, John R, 1985. "Capital Market Information and Industrial Performance: The Role of West German Banks," Economic Journal, Royal Economic Society, vol. 95(377), pages 118-32, March. [Downloadable!] (restricted)
  13. Amihud, Yakov & Mendelson, Haim, 1986. "Asset pricing and the bid-ask spread," Journal of Financial Economics, Elsevier, vol. 17(2), pages 223-249, December. [Downloadable!] (restricted)
  14. Corrado, Charles J., 1989. "A nonparametric test for abnormal security-price performance in event studies," Journal of Financial Economics, Elsevier, vol. 23(2), pages 385-395, August. [Downloadable!] (restricted)
  15. Copeland, Thomas E, 1979. "Liquidity Changes Following Stock Splits," Journal of Finance, American Finance Association, vol. 34(1), pages 115-41, March. [Downloadable!] (restricted)
  16. Elena Zoido, 1998. "Un estudio de las participaciones accionariales de los bancos en las empresas españolas," Investigaciones Economicas, Fundación SEPI, vol. 22(3), pages 427-467, September. [Downloadable!]
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Miguel A. Acedo & Fco. Javier Ruiz & Rafael Santamaría, 2008. "Influence of Secondary Offerings on the Liquidity and Trading Activity of Stocks Outstanding," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 58(01-02), pages 21-37, January. [Downloadable!]
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