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Stock splits: motivations and valuation effects in the Spanish market

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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Article provided by Fundación SEPI in its journal Investigaciones Economicas.

Volume (Year): 27 (2003)
Issue (Month): 3 (September)
Pages: 459-490

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Handle: RePEc:iec:inveco:v:27:y:2003:i:3:p:459-490
Contact details of provider: Postal: Investigaciones Economicas Fundación SEPI Quintana, 2 (planta 3) 28008 Madrid Spain
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  1. 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.
  2. 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.
  3. Copeland, Thomas E, 1979. "Liquidity Changes Following Stock Splits," Journal of Finance, American Finance Association, vol. 34(1), pages 115-41, March.
  4. 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.
  5. Gonzalo Rubio & Mikel Tapia, 1996. "Adverse selection, volume and transactions around dividend announcements in a continuous auction system," European Financial Management, European Financial Management Association, vol. 2(1), pages 39-67.
  6. 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.
  7. 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.
  8. Amihud, Yakov & Mendelson, Haim, 1986. "Asset pricing and the bid-ask spread," Journal of Financial Economics, Elsevier, vol. 17(2), pages 223-249, December.
  9. 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.
  10. 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.
  11. 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.
  12. 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.
  13. 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.
  14. Gary Gorton & Frank A. Schmid, 1996. "Universal Banking and the Performance of German Firms," NBER Working Papers 5453, National Bureau of Economic Research, Inc.
  15. 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.
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