The Effects of Stock Splits on Bid-Ask Spreads
This paper examines the effects of stock splits on bid-ask spreads for NYSE-listed companies. Percentage spreads increase after splits, representing a liquidity cost to investors. These spread increases are directly related to decreases in share prices following splits and can explain part, but not all, of the observed increase in return variability after splits. The evidence, thus, suggests a liquidity cost of stock splits that must be weighed against any other perceived benefits of splits. Such a liquidity cost may validate that stock splits are a signal of favorable information about the firm. Copyright 1990 by American Finance Association.
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Volume (Year): 45 (1990)
Issue (Month): 4 (September)
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