Do stock splits signal undervaluation?

Mohammad A. Karim and Sayan Sarkar

Journal of Behavioral and Experimental Finance, 2016, vol. 9, issue C, 119-124

Abstract: Signaling theory of stock splits postulates that managers use stock splits to convey favorable private information to the market about the fair value of the firm and thus attempt to reduce or eliminate undervaluation. In this paper, we investigate this proposition using three different misvaluation estimates. Contrary to the undervaluation hypothesis, we find that split firms are overvalued, rather than undervalued for the seven years surrounding split announcements. Moreover, the overvaluation reaches its peak in the split announcement year and declines in the post-split period. Overall, our results suggest that firms do not use stock splits to signal undervaluation.

Keywords: Stock splits; Equity mispricing (search for similar items in EconPapers)
JEL-codes: G14 G32 (search for similar items in EconPapers)
Date: 2016
References: Add references at CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S2214635016000113

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:beexfi:v:9:y:2016:i:c:p:119-124

DOI: 10.1016/j.jbef.2016.01.004

Access Statistics for this article

Journal of Behavioral and Experimental Finance is currently edited by Michael Dowling and Jürgen Huber

More articles in Journal of Behavioral and Experimental Finance from Elsevier
Bibliographic data for series maintained by Catherine Liu ().