What do stock splits really signal?

David L. Ikenberry, Graeme Rankine, Earl K. Stice

    Research output: Contribution to journalArticlepeer-review

    183 Scopus citations

    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 languageEnglish (US)
    Pages (from-to)357-375
    Number of pages19
    JournalJournal of Financial and Quantitative Analysis
    Volume31
    Issue number3
    DOIs
    StatePublished - Sep 1996

    ASJC Scopus subject areas

    • Accounting
    • Finance
    • Economics and Econometrics

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