The rationale behind stock splits : its effects and market reaction

Abstract

This study aims to investigate the impact of stock splits on the performance of selected companies from different sectors listed on NYSE and NASDAQ from June 2020 to the end of December 2022. The study employs the market model-event study methodology with an event window of 66 days (50 days prior to announcement split and 15 days post-announcement split) and split announcement date (𝐴𝑛 date, 𝑡0) as the event date, to examine the market reaction. The findings indicate that the market is found to react positively with significantly positive average abnormal results on 𝑡0 and very near to the 𝐴𝑛 date especially evident during 𝑡−1 to 𝑡+1. Several hypotheses were considered in this study. The findings suggested that signalling hypothesis was the main motive behind the actions.