An examination of the survivability of reverse stock splits

Karyn L. Neuhauser and Thomas H. Thompson

International Journal of Managerial Finance, 2014, vol. 10, issue 3, 293-311

Abstract: Purpose - – The purpose of this paper is to examine the survivability of 810 reverse splits during the 1995-2006 period and show that companies that undertake reverse stock splits often fail within a relatively short time following the split. Design/methodology/approach - – Applying both a logit model and an adapted version of the Hensleret al.(1997) accelerated failure time model to 810 reverse splits during the 1995-2006 period, the authors are the first to study the survivability of reverse split companies. Findings - – The paper finds that the market reaction to the reverse split on the ex-date is an important predictor of the likelihood of survival and of survival time. The paper finds that the likelihood of survival also depends on firm size, pre-split firm returns, and the post-split share price level. The paper finds that post-split survival time also depends on firm size, pre-split operating performance as measured by return on assets, pre-split firm returns, leverage, and the post-split share price level. Practical implications - – The study may be of interest to investors considering investing in stocks that have undergone reverse splits. Originality/value - – The research sheds light on which reverse splitting firms are most likely to survive and for how long.

Keywords: Survival; Exchange listing requirements; Reverse stock splits; Stock splits; Survivability (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eme:ijmfpp:v:10:y:2014:i:3:p:293-311

DOI: 10.1108/IJMF-09-2013-0101

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