Information Content and Intra-Industry Effect of Stock Splits: Evidence from Indonesia

Eddy Junarsin and Bayu Pranoto

Accounting & Taxation, 2009, vol. 1, issue 1, 15-27

Abstract: This study examines the information content of stock split announcements. It is hypothesized that there are abnormal returns around the stock split announcement dates. Negative AARs are found before and after the announcement. The negative reaction after the stock split announcement suggests that a stock split may be deemed bad news. This finding does not support the signaling hypothesis which suggests that stocks splits function as management’s signals of good future prospect. When splitting the data by the growth level of the firm, we find that the stock prices growing firms and non growing firms react differently to a stock split announcement. An intra-industry examination shows negative AAR substantiating the contagion effect that the price of non-splitting firms in the same industry also react to the split announcement. This implies that a stock split is not a firm-specific event, but it also influences the industry.

Keywords: stock split; intra-industry effect; liquidity and signaling hypothesis; contagion effect. (search for similar items in EconPapers)
JEL-codes: G14 G15 (search for similar items in EconPapers)
Date: 2009
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