Thirty Years of Stock Splits, Reverse Stock Splits, and Stock Dividends in Canada

Abstract

We use thirty years of Canadian evidence to shed light on the implications of Stock Splits, stock dividends and reverse splits. We focus on the period around -60 months to +60 months of the event month and examine changes in returns, eps, betas, trading volume, number of transactions and P/E ratios. Our results indicate that there is no information signalling since the performance of stocks in the post-event period is less than pre-event but there is an increase in the trading volume but the per transaction trading volume decreases considerably. This evidence supports the optimum price hypothesis and a change in the shareholder composition. In addition we show that there is a permanent change in the valuation parameter as denoted by P/E ratios possibly as a result of a shift between institutional investors to individual investors.