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Multiple reverse stock splits (investors beware!)

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  • Claire Crutchley
  • Steven Swidler

Abstract

This study compares firms that implement multiple reverse stock splits to firms with only one reverse stock split. Reverse stock splits are usually implemented by firms trying to increase their stock price to remain listed on stock exchanges or widen stock ownership especially by institutional investors. Firms that declare multiple reverse splits tend to have lower returns following the reverse split and even less liquidity than one reverse split firms. Sixty five percent of the firms with multiple reverse splits end up being liquidated or delisted. If one reverse split is viewed as desperation, then multiple reverse stock splits are a sign of extreme distress. Copyright Springer Science+Business Media New York 2015

Suggested Citation

  • Claire Crutchley & Steven Swidler, 2015. "Multiple reverse stock splits (investors beware!)," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 39(2), pages 357-369, April.
    • Handle: RePEc:spr:jecfin:v:39:y:2015:i:2:p:357-369
    DOI: 10.1007/s12197-013-9259-x
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    References listed on IDEAS

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    1. Desai, Hemang & Jain, Prem C, 1997. "Long-Run Common Stock Returns following Stock Splits and Reverse Splits," The Journal of Business, University of Chicago Press, vol. 70(3), pages 409-433, July.
    2. David R. Peterson & Pamela P. Peterson, 1992. "A Further Understanding Of Stock Distributions: The Case Of Reverse Stock Splits," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 15(3), pages 189-205, September.
    3. Han, Ki C., 1995. "The Effects of Reverse Splits on the Liquidity of the Stock," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 30(1), pages 159-169, March.
    4. Seoyoung Kim & April Klein & James Rosenfeld, 2008. "Return Performance Surrounding Reverse Stock Splits: Can Investors Profit?," Financial Management, Financial Management Association International, vol. 37(2), pages 173-192, June.
    5. Lamoureux, Christopher G & Poon, Percy, 1987. "The Market Reaction to Stock Splits," Journal of Finance, American Finance Association, vol. 42(5), pages 1347-1370, December.
    6. Hwang, Chuan Yang, 1995. "Microstructure and Reverse Stock Splits," Review of Quantitative Finance and Accounting, Springer, vol. 5(2), pages 169-177, June.
    7. Terrence Martell & Gwendolyn Webb, 2008. "The performance of stocks that are reverse split," Review of Quantitative Finance and Accounting, Springer, vol. 30(3), pages 253-279, April.
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    Cited by:

    1. Blau, Benjamin M. & Cox, Justin S. & Griffith, Todd G. & Voges, Ryan, 2023. "Daily short selling around reverse stock splits," Journal of Financial Markets, Elsevier, vol. 65(C).
    2. Zaremba, Adam & Okoń, Szymon & Asyngier, Roman & Schroeter, Lucia, 2019. "Reverse splits in international stock markets: Reconciling the evidence on long-term returns," Research in International Business and Finance, Elsevier, vol. 47(C), pages 552-562.

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    More about this item

    Keywords

    Reverse stock splits; Liquidity; Shares; Information; G14; G34;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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