Is Share Price Related to Marketability? Evidence from Mutual Fund Share Splits

Chitru S. Fernando, Srinivasan Krishnamurthy and Paul A. Spindt

Center for Financial Institutions Working Papers from Wharton School Center for Financial Institutions, University of Pennsylvania

Abstract: We examine the "marketability hypothesis," which states that stock splits enhance the attractiveness of shares to investors by restoring prices to a preferred trading range. We examine splits of mutual fund shares because they provide a clean testing ground for the marketability hypothesis, since the conventional rationales for common stock splits do not apply. We find that splitting funds experience significant increases (relative to non-splitting matched funds) in net assets and shareholders. Stock splits do appear to enhance marketability.

Date: 1999-08
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