Abstract
The present study investigated the long-run returns following over 5,000 reverse splits conducted in 24 developed equity markets within years 1990–2016. Using the calendar-time portfolio approach, we proved that firms consolidating their stocks significantly underperformed over the 18 months following the event. This phenomenon was present in all of the global regions we examined — North America, Europe, and Asia-Pacific — and it was robust to many considerations. Any apparent overperformance was driven solely by micro-caps that were strongly represented among the companies carrying out reverse splits. Furthermore, the abnormal returns following share consolidations were not correlated among various international markets.
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