Mixed‐signal stock splits

Abstract

AbstractWe investigate CEOs who combine insider selling with stock splits, which is suspicious, because dumping stocks is inconsistent with the positive stock‐split signal. Our empirical results indicate that, compared with other splits, these mixed‐signal splits perform poorly and are followed by much lower buy‐and‐hold abnormal returns and much higher likelihoods of announcing an earnings restatement and CEO turnover in the post‐split period. Our results are robust to entropy balancing and controlling for CEO characteristics, incentives, and corporate governance and highlight previously ignored agency issues around stock splits. Attention to insider trades is essential to properly interpret a stock‐split signal.