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Information Content and Intra-Industry Effect of Stock Splits: Evidence from Indonesia

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  • Eddy Junarsin
  • Bayu Pranoto

Abstract

This study examines the information content of stock split announcements. It is hypothesized that there are abnormal returns around the stock split announcement dates. Negative AARs are found before and after the announcement. The negative reaction after the stock split announcement suggests that a stock split may be deemed bad news. This finding does not support the signaling hypothesis which suggests that stocks splits function as management’s signals of good future prospect. When splitting the data by the growth level of the firm, we find that the stock prices growing firms and non growing firms react differently to a stock split announcement. An intra-industry examination shows negative AAR substantiating the contagion effect that the price of non-splitting firms in the same industry also react to the split announcement. This implies that a stock split is not a firm-specific event, but it also influences the industry.

Suggested Citation

  • Eddy Junarsin & Bayu Pranoto, 2009. "Information Content and Intra-Industry Effect of Stock Splits: Evidence from Indonesia," Accounting & Taxation, The Institute for Business and Finance Research, vol. 1(1), pages 15-27.
    • Handle: RePEc:ibf:acttax:v:1:y:2009:i:1:p:15-27
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    References listed on IDEAS

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    More about this item

    Keywords

    stock split; intra-industry effect; liquidity and signaling hypothesis; contagion effect.;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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