The market's response to recurring events The case of stock splits

Eugene Pilotte; Timothy Manuel

doi:10.1016/0304-405X(95)00859-D

The market's response to recurring events The case of stock splits

Eugene Pilotte
, Timothy Manuel

Accounting and Finance

Rutgers - The State University of New Jersey, Camden

Research output: Contribution to journal › Article › peer-review

33 Scopus citations

Abstract

A substantial body of literature suggests that stock splits convey information. In this paper we extend this literature by examining firms that split their stock at least twice during 1970-1988. We focus on firms with multiple splits to provide evidence on the market's use of previous split experience in interpreting a recurring event. Our major findings are that stock price responses to both stock splits and post-split earnings changes depend on earnings realizations observed after previous splits. These findings support the conclusion that the market uses previous split experience to interpret a recurring event.

Original language	English
Pages (from-to)	111-127
Number of pages	17
Journal	Journal of Financial Economics
Volume	41
Issue number	1
DOIs	https://doi.org/10.1016/0304-405X(95)00859-D
State	Published - May 1996

Funding

We gratefully acknowledge the helpful comments of Jerold Warner (the editor), Paul Healy (the referee), William T. Moore, Rodney Roenfeldt, G. Rodney Thompson, and seminar participants at Concordia University, the University of Dayton, the University of Montana, Southern Illinois University-Carbondale, Rutgers University, and the 1993 Western Finance Association. The second author acknowledges summer financial support provided by the University of Montana. ‘Fama, Fisher, Jensen, and Roll (1969) Bar-Yosefand Brown (1977), Charest (1978) and Grinblatt, Masulis, and ‘I’itman (lYX4) show that stock prices rise on average around split announcements. Brennan and Copeland (1988) show that stock splits are costly for firms that split their stock

Keywords

Earnings information
Price response
Stock splits

Access to Document

10.1016/0304-405X(95)00859-D

Cite this

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title = "The market's response to recurring events The case of stock splits",

abstract = "A substantial body of literature suggests that stock splits convey information. In this paper we extend this literature by examining firms that split their stock at least twice during 1970-1988. We focus on firms with multiple splits to provide evidence on the market's use of previous split experience in interpreting a recurring event. Our major findings are that stock price responses to both stock splits and post-split earnings changes depend on earnings realizations observed after previous splits. These findings support the conclusion that the market uses previous split experience to interpret a recurring event.",

keywords = "Earnings information, Price response, Stock splits",

author = "Eugene Pilotte and Timothy Manuel",

note = "Funding Information: We gratefully acknowledge the helpful comments of Jerold Warner (the editor), Paul Healy (the referee), William T. Moore, Rodney Roenfeldt, G. Rodney Thompson, and seminar participants at Concordia University, the University of Dayton, the University of Montana, Southern Illinois University-Carbondale, Rutgers University, and the 1993 Western Finance Association. The second author acknowledges summer financial support provided by the University of Montana. {\textquoteleft}Fama, Fisher, Jensen, and Roll (1969) Bar-Yosefand Brown (1977), Charest (1978) and Grinblatt, Masulis, and {\textquoteleft}I{\textquoteright}itman (lYX4) show that stock prices rise on average around split announcements. Brennan and Copeland (1988) show that stock splits are costly for firms that split their stock",

year = "1996",

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doi = "10.1016/0304-405X(95)00859-D",

language = "English",

volume = "41",

pages = "111--127",

journal = "Journal of Financial Economics",

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AU - Manuel, Timothy

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N2 - A substantial body of literature suggests that stock splits convey information. In this paper we extend this literature by examining firms that split their stock at least twice during 1970-1988. We focus on firms with multiple splits to provide evidence on the market's use of previous split experience in interpreting a recurring event. Our major findings are that stock price responses to both stock splits and post-split earnings changes depend on earnings realizations observed after previous splits. These findings support the conclusion that the market uses previous split experience to interpret a recurring event.

AB - A substantial body of literature suggests that stock splits convey information. In this paper we extend this literature by examining firms that split their stock at least twice during 1970-1988. We focus on firms with multiple splits to provide evidence on the market's use of previous split experience in interpreting a recurring event. Our major findings are that stock price responses to both stock splits and post-split earnings changes depend on earnings realizations observed after previous splits. These findings support the conclusion that the market uses previous split experience to interpret a recurring event.

KW - Earnings information

KW - Price response

KW - Stock splits

UR - https://www.scopus.com/pages/publications/0030139722

U2 - 10.1016/0304-405X(95)00859-D

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SP - 111

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JO - Journal of Financial Economics

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IS - 1

ER -

The market's response to recurring events The case of stock splits

Abstract

Funding

Keywords

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