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Are Stock Splits Credible Signals? Evidence From The Singapore Market

Author

Listed:
  • M. ARIFF

    (Monash University, Department of Accounting and Finance, P.O. Box 197, Caulfield East, Vic 3163, Australia)

  • WALAYET A. KHAN

    (University of Evansville, School of Business, 1800 Lincoln Avenue, Evansville, IN 47722, USA)

  • H. KENT BAKER

    (American University, Kogod School of Business, Department of Finance and Real Estate, 4400 Massachusetts Avenue, NW Washington, D.C. 20016-8044, USA)

Abstract

This paper studies the effects of stock splits on returns using daily data from the Singapore Stock Exchange over the period 1983-2000. Specifically, it examines whether stock split announcements provide credible signals due to asymmetry of information. We find that the market, on average, responds positively and significantly to announcements of stock splits. We then partition the sample into sub-samples: one with dividends (earnings) increasing firms and another with dividends (earnings) decreasing firms the 12 month period after the stock split. Both groups respond positively to stock split announcements on the event period, which initially casts doubt on the signaling hypothesis. Additional tests show that the difference between the cumulative average returns of the two sub-samples is significantly positive during the post-event and/or full-test period. An implication of this finding is that the market can differentiateex antebetween the two sub-samples, which lends support to the hypothesis that stock split announcements generally provide credible signals of future prospects.

Suggested Citation

  • M. Ariff & Walayet A. Khan & H. Kent Baker, 2004. "Are Stock Splits Credible Signals? Evidence From The Singapore Market," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 49(02), pages 163-177.
    • Handle: RePEc:wsi:serxxx:v:49:y:2004:i:02:n:s021759080400086x
    DOI: 10.1142/S021759080400086X
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    Cited by:

    1. S. Amir Tabibian & Zhaoyong Zhang & Mohsen Jafarian, 2020. "How Does Split Announcement Affect Stock Liquidity? Evidence from Bursa Malaysia," Risks, MDPI, vol. 8(3), pages 1-14, August.

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