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Examining the Effect of Stock liquidity on the Relationship between Stock Split and Stock Market Performance

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  • Ahmed EzzElDin
  • Hayam Wahba

Abstract

The effect of stock liquidity on the relation between stock split and stock market performance is puzzling. This paper examines the factors that affect the relationship between stock split and stock market performance. The data are gathered from the Egyptian Stock Exchange listed companies, based on their market capitalization from all sectors in Egypt during 2010 to 2020. This event study employs multiple regression analysis. Liquidity is measured by volume and number of transactions. Announcement date is considered for stock split as independent variable. Also, firm size, split factor, Industry type as control variables have been tested in the model. The research is event study; The time window is based on twenty days and five days. Results indicate that liquidity as moderator is positively affect the relationship between stock split and stock market performance for five- and twenty-days’ time windows. A robustness check has been performed for every regression model. Showing significant effect of liquidity as moderator, measured by volume of transactions, on the relationship for the sample period between 2010 and 2019 for twenty days’ time window. Results support the easiness and enhancing the process of stock split. For example, Financial Regulator Authority could waive its approval for stock split to companies’ general assembly as the market would correct itself for disturbance in liquidity after stock split announcement. Also, Minimizing the number of companies that don't execute stock split affect the investors’ behavior which affects the relationship of stock split announcement and stock market performance.

Suggested Citation

  • Ahmed EzzElDin & Hayam Wahba, 2022. "Examining the Effect of Stock liquidity on the Relationship between Stock Split and Stock Market Performance," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 14(5), pages 1-42, May.
    • Handle: RePEc:ibn:ijefaa:v:14:y:2022:i:5:p:42
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    References listed on IDEAS

    as
    1. Copeland, Thomas E, 1979. "Liquidity Changes Following Stock Splits," Journal of Finance, American Finance Association, vol. 34(1), pages 115-141, March.
    2. Patrick Dennis & Deon Strickland, 2003. "The Effect Of Stock Splits On Liquidity And Excess Returns: Evidence From Shareholder Ownership Composition," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 26(3), pages 355-370, September.
    3. Patrick Dennis, 2003. "Stock Splits and Liquidity: The Case of the Nasdaq‐100 Index Tracking Stock," The Financial Review, Eastern Finance Association, vol. 38(3), pages 415-433, August.
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    JEL classification:

    • R00 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General - - - General
    • Z0 - Other Special Topics - - General

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