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Structural Equation Modeling Applied to the Reaction to Stock Dividends and Stock Splits: integrating signaling, liquidity and optimal price level

Author

Listed:
  • Kelmara Mendes Vieira

    (Universidade Federal de Santa Maria)

  • João Luiz Becker

    (Universidade Federal do Rio Grande do Sul)

Abstract

This work develops a hybrid model of structural equations able to take simultaneously the hypotheses of signaling, liquidity, and optimal price level to explain the reaction to the stock dividends and stock splits. In the measurement model four constructs were defined: trading activity, spread, size, and price. The structural model defines extant relations from the proposition of 22 sub-hypotheses. A sample of 321 splits performed in the Brazilian market between 1990 and 2004 was used for assessing the model. Confirmatory factor analysis revealed the validity and coherence of the four constructs. The structural model confirmed 9 original sub-hypotheses.

Suggested Citation

  • Kelmara Mendes Vieira & João Luiz Becker, 2011. "Structural Equation Modeling Applied to the Reaction to Stock Dividends and Stock Splits: integrating signaling, liquidity and optimal price level," Brazilian Review of Finance, Brazilian Society of Finance, vol. 9(1), pages 69-104.
    • Handle: RePEc:brf:journl:v:9:y:2011:i:1:p:69-104
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    More about this item

    Keywords

    stock dividend; stock splits; structural equations; signaling; liquidity; optimal price level;
    All these keywords.

    JEL classification:

    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G35 - Financial Economics - - Corporate Finance and Governance - - - Payout Policy

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