Signaling through timing of stock splits

Maria Chiara Iannino*, Min Zhang, Sergey Zhuk

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

Abstract

We develop a dynamic structural model of stock splits, in which managers signal their private information through the timing of the split decisions. Our approach is consistent with the empirical evidence which shows that the majority of stock splits have a 2:1 ratio of old-to-new shares, but are announced at various pre-split price levels. Moreover, it explains why split announcement returns are decreasing with the pre-split price. In addition, by matching the model to the data, we estimate the nominal share price preferences of investors and decompose the split announcement return into the value of new information and the signaling cost.
Original languageEnglish
Article number102610
Number of pages23
JournalJournal of Corporate Finance
Volume87
Early online date11 Jul 2024
DOIs
Publication statusE-pub ahead of print - 11 Jul 2024

Keywords

  • Stock splits
  • Nominal share price preferences
  • Signaling
  • Structural model
  • Dynamic model

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