A Study about Who Is Interested in Stock Splitting and Why: Considering Companies, Shareholders, or Managers

Abstract

There are many misconceptions around stock prices and stock splits, and the behavior of shareholders, investors, and managers based on such information, due to a number of confounding factors. This paper tests a few hypotheses using a selected database, concerning the question “Is the stock split attractive for companies?”—in another words, “Why do companies split their stock?”, “Why do managers split their stock?” (sometimes for no benefit), and “Why do shareholders agree with such decisions?”. We contribute to the existing knowledge through a discussion of a random code selection of nine events in recent (selectively chosen) years, observing the role of information asymmetries, and the returns and traded volumes before and after the event. Therefore, calculating the beta for each sample, it is found that stock splits (i) affect the market and slightly enhance the trading volume in the short term, (ii) increase the shareholder base for their firm, and (iii) have a positive effect on the liquidity of the market. We concur that stock-splitting announcements can reduce the level of information asymmetries. Investors readjust their beliefs in the firm, although most of the firms are mispriced in the stock split year.