The market reaction to the choice of accounting method for stock splits and large stock dividends

Graeme Rankine, Earl K. Stice

    Research output: Contribution to journalArticle

    36 Citations (Scopus)

    Abstract

    Prior research has used inaccurate classification rules to distinguish between stock splits and stock dividends. The CRSP classification of two-for-one stock distributions agrees with the actual accounting treatment only 23% of the time. In addition, the accounting treatment impacts the announcement period reaction - two-for-one distributions accounted for as stock dividends are associated with five-day announcement period returns of 2.70%, significantly greater that the 0.93% announcement returns for distributions accounted for as stock splits. Announcement returns are positively related to earnings growth in the two years following the distribution for stock dividend firms but not for stock split firms. The accounting choice appears to be used to confirm management's private information about future earnings revealed at the time of the distribution announcement.

    Original languageEnglish (US)
    Pages (from-to)161-182
    Number of pages22
    JournalJournal of Financial and Quantitative Analysis
    Volume32
    Issue number2
    StatePublished - Jun 1997

    Fingerprint

    Stock splits
    Stock dividends
    Market reaction
    Announcement
    Announcement returns
    Private information
    Accounting choice
    Earnings growth

    ASJC Scopus subject areas

    • Accounting
    • Economics and Econometrics
    • Finance

    Cite this

    The market reaction to the choice of accounting method for stock splits and large stock dividends. / Rankine, Graeme; Stice, Earl K.

    In: Journal of Financial and Quantitative Analysis, Vol. 32, No. 2, 06.1997, p. 161-182.

    Research output: Contribution to journalArticle

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