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A Note on Affordability and the Optimal Share Price

Author

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  • William T. Chittenden
  • Janet D. Payne
  • J. Holland Toles

Abstract

Despite the increase in institutional ownership, decreased trading costs, and increased real personal savings, we find that the average stock price is lower today than it was in the 1920s. In the aggregate, the propensity to split is a function of recent market performance, personal savings, and the desirability of appearing to be a small firm. Our results indicate that, after decades of inflation and the average stock price falling, splitting stocks to return to an “affordable” trading range must be rejected as an explanation. This suggests that other economic forces are behind splits, whether traditional or behavioral in nature.

Suggested Citation

  • William T. Chittenden & Janet D. Payne & J. Holland Toles, 2010. "A Note on Affordability and the Optimal Share Price," The Financial Review, Eastern Finance Association, vol. 45(1), pages 205-216, February.
    • Handle: RePEc:bla:finrev:v:45:y:2010:i:1:p:205-216
    DOI: 10.1111/j.1540-6288.2009.00243.x
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    Cited by:

    1. S. Amir Tabibian & Zhaoyong Zhang & Abdollah Ah Mand, 2021. "Stock Split Rule Changes and Stock Liquidity: Evidence from Bursa Malaysia," JRFM, MDPI, vol. 14(9), pages 1-15, August.
    2. Maria Chiara Iannino & Sergey Zhuk, 2020. "Signaling through Timing of Stock Splits," Discussion Paper Series, School of Economics and Finance 202009, School of Economics and Finance, University of St Andrews, revised 18 Jun 2021.
    3. 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.

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