Abstract
We investigate managerial opportunistic behavior and find that hundreds of firms use forward stock splits in conjunction with accruals management and real activities management to falsely signal bright prospects in schemes that help executives justify an average 34% increase in their salaries. While encouraging lay investors to buy the stocks with a stock split signal, insiders themselves reduce their own stakes, reflecting negative personal beliefs about firms’ prospects. Insider stock sales, accounting restatements, short CEO tenure, and reverse splits indicate the manipulative intent in these stock split announcements.
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