Title

The information content of stock splits

Authors

Authors

H. H. Chen; H. H. Nguyen;V. Singal

Comments

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Abbreviated Journal Title

J. Bank Financ.

Keywords

Stock splits; Earnings performance; Market efficiency; Institutional; investors; MUTUAL FUND PERFORMANCE; RETURNS; ANNOUNCEMENTS; PRICES; INSTITUTIONS; OWNERSHIP; LIQUIDITY; EARNINGS; RISK; NEWS; Business, Finance; Economics

Abstract

We develop a new methodology that controls for both the timing of annual earnings news (Asquith et al., 1989) and the performance prior to split announcements (Barber and Lyon, 1996) to evaluate the information content of stock splits. In contrast to existing evidence, we find that stock splits in aggregate are followed by positive abnormal future earnings growth, suggesting that stock splits contain information about future, rather than past, operating performance. When we use changes in breadth of institutional ownership as a new metric of information content to corroborate our findings, we find that splits with the greatest increase in breadth experience positive post-split abnormal returns and positive abnormal earnings growth. Together, our results suggest that some splits contain positive information about future performance, and that sophisticated market participants such as institutional investors are able to select these splits. (C) 2011 Elsevier B.V. All rights reserved.

Journal Title

Journal of Banking & Finance

Volume

35

Issue/Number

9

Publication Date

1-1-2011

Document Type

Article

Language

English

First Page

2454

Last Page

2467

WOS Identifier

WOS:000293310700021

ISSN

0378-4266

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