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Intra-industry reactions of stock split announcements

Oranee Tawatnuntachai and Ranjan D'Mello
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Oranee Tawatnuntachai: University of New Orleans
Ranjan D'Mello: University of New Orleans

No 1999-01, Working Papers from University of New Orleans, Department of Economics and Finance

Abstract: This paper examines whether favorable information conveyed by stock split announcements transfers to non-splitting firms within the same industry. We find that there exists intra-industry reaction; shareholders of non-splitting firms experience significant positive abnormal returns during the stock split announcement period of their industry counterparts. In addition, we find that industry-wide (level of concentration) and firm-specific characteristics (degree of similarity with the splitting firm, level of asymmetric information, and mispricing) are important determinants in explaining the impact of the announcements on non-splitting firms. We further document an increase in earnings subsequent to the announcements which is associated to the stock price reactions. However, we find little evidence that there is a decline in earnings volatility and find no significant relation between change in earnings volatility and announcement period returns.

Keywords: Stock market; Stock splits; Earnings volatility (search for similar items in EconPapers)
JEL-codes: G14 G39 (search for similar items in EconPapers)
Date: 1999-06
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