Signaling through timing of stock splits
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.
Citation
Iannino , M C , Zhang , M & Zhuk , S 2024 , ' Signaling through timing of stock splits ' , Journal of Corporate Finance , vol. 87 , 102610 . https://doi.org/10.1016/j.jcorpfin.2024.102610
Publication
Journal of Corporate Finance
Status
Peer reviewed
ISSN
0929-1199Type
Journal article
Collections
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