Abstract
We observe significant post-split excess returns of 7.93 percent in the first year and 12.15 percent in the first three years for a sample of 1,275 two-for-one stock splits. These excess returns follow an announcement return of 3.38 percent, indicating that the market underreacts to split announcements. The evidence suggests that splits realign prices to a lower trading range, but managers self-select by conditioning the decision to split on expected future performance. Presplit runup and post-split excess returns are inversely related, indicating that our results are not caused by momentum.
Original language | English (US) |
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Pages (from-to) | 357-375 |
Number of pages | 19 |
Journal | Journal of Financial and Quantitative Analysis |
Volume | 31 |
Issue number | 3 |
DOIs | |
State | Published - Sep 1996 |
ASJC Scopus subject areas
- Accounting
- Finance
- Economics and Econometrics