What Do Stock Splits Really Signal?

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

Journal of Financial and Quantitative Analysis, 1996, vol. 31, issue 3, 357-375

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.

Date: 1996
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