Are Stock Spilts Credible Signals? Evidence from Short Interest Data

Padma Kadiyala and Michael Vetsuypens

Financial Management, 2002, vol. 31, issue 1

Abstract: We propose the change in short interest as a new metric of the signaling strength of a corporate event. If an event signals positive information, short interest should decline at the event announcement. We study short interest around stock split announcements made by NYSE firms during 1990-94. Short interest does not decline around stock splits, which suggests that the typical split does not convey a positive signal. However, short interest declines for the subset of the sample characterized by favorable industry-adjusted pre-split performance. Short interest increases significantly for firms that experience post-split liquidity improvements.

Date: 2002
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