Stock Split Rule Changes and Stock Liquidity: Evidence from Bursa Malaysia

S Amir Tabibian,Abdollah Ah Mand,Zhaoyong Zhang

doi:10.3390/jrfm14090406

S Amir Tabibian, Abdollah Ah Mand + Show 1 more

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https://doi.org/10.3390/jrfm14090406

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Abstract

We test the impact of stock split rule changes on liquidity behavior in Bursa Malaysia during 2004–2020. Using event study methodology, this study examines stock liquidity on and around stock split days through three subperiods of study, including the first (2004–2006), second (2007–2009), and third (2010–2020) period. We find that liquidity improvement is short-lived in the first and second periods, while it is a long-lived phenomenon in the third period. Firms in the first and second period experienced liquidity improvement only on the split announcement day, while it lasts up to a year after the Ex-date for firms in the third period. Our findings also show a liquidity improvement after the Ex-date only in the third period for the groups of firms categorized based on the liquidity, split factor, and other simultaneous announcements. The findings suggest a positive effect of stock split rule changes implemented by the Securities Commission.

Highlights

IntroductionJournal of Risk and Managers are still implementing stock splits, a cosmetic accounting change, and rationalizing them by a positive effect on liquidity, while scholars report a short-lived improvement on split days which declines after the split execution date (Ex-date)
For each study period, the change in liquidity measurements, including turnover ratio (TER) and relative spread (RLS), among the Intervals 2–7 compared to Inturnover ratio (TER) and relative spread (RLS), among the Intervals 2–7 compared to terval 1
There is an insignificant decrease in relative spread in the first and second periods, while this is significant in the third period

Summary

Introduction

Journal of Risk and Managers are still implementing stock splits, a cosmetic accounting change, and rationalizing them by a positive effect on liquidity, while scholars report a short-lived improvement on split days which declines after the split execution date (Ex-date). Most of the managers in Bursa Malaysia detail an expectation of liquidity improvement in split proposals. Following the changes and improvements in the regulations implemented by the Securities Commission (SC) in 2006 and 2009, Bursa Malaysia was evaluated by the IMF under the Financial Sector Assessment Programme (FSAP) and achieved the highest rank in 2013. The contradiction between managers’ beliefs and the findings of the study by Tabibian et al (2020), in addition to the SC achievement, are a strong motivation to investigate liquidity behavior following stock split rule changes

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