Management's View of Stock Splits

Baker, H. Kent; Gallagher, Patricia L.

doi:10.2307/3665171

Cited by 183 publications

(108 citation statements)

References 6 publications

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“…Kalay and Kronlund (2009) Baker and Gallagher (1980) yang menyatakan motif perusahaan melakukan stock split adalah harapan untuk memperoleh semakin banyak investor kecil yang justru akan membuat kestabilan pasar dibanding dengan investor besar (bandar) yang merupakan pengontrol harga di pasar. Hal ini karena menurut Stoval (1995) investor kecil adalah investor publik yang memiliki kontrol terhadap setiap aksi korporasi perusahaan dan cenderung untuk berorientasi jangka panjang.…”

Section: Hipotesis Optimal Trading Range (Otr)unclassified

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Stock Split Dan Likuiditas Saham Di Bei: Pengujian Menggunakan Hipotesis Likuiditas

Setyawan¹

2010

JAKI

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Section: Hipotesis Optimal Trading Range (Otr)unclassified

“…Penulis menyarankan penelitian dengan pendekatan survai seperti Baker and Gallagher (1980) yang bersifat behavioral karena mampu mengungkap perilaku dari manajemen dalam kasus stock split. Sebab ada kecendrungan manajamen akan menggunakan stock split sebagai aksi korporasi awal sebelum memunculkan aksi korporasi yang lebih besar misal merger dan akuisisi.…”

Section: Grafikunclassified

Stock Split Dan Likuiditas Saham Di Bei: Pengujian Menggunakan Hipotesis Likuiditas

Setyawan¹

2010

JAKI

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“…The survey results are consistent with our findings that mutual fund splits are not signaling devices, but, for whatever reason, investors appear to regard splits as attractive. The survey format is similar to that used by Baker and Gallagher (1980) in which they examined management's attitude toward a common stock split.…”

Section: Survey Of Mutual Fund Managersmentioning

confidence: 99%

“…-Yogi Berra, when asked if he wanted his pizza cut into four or six pieces. Hall of Fame Collection 1 Although practitioners suggest that marketability is the primary reason for executing a split (e.g., Baker and Gallagher, 1980;Baker and Powell, 1993), few papers have rigorously explored this possibility. However, academic research on common stock splits has found some support for the marketability hypothesis.…”

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confidence: 99%

Is Share Price Related to Marketability? Evidence from Mutual Fund Share Splits

Fernando¹,

Krishnamurthy²,

Spindt³

1999

Financial Management

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We examine the "marketability hypothesis," which states that stock splits enhance the attractiveness of shares to investors by restoring prices to a preferred trading range. We examine splits of mutual fund shares because they provide a clean testing ground for the marketability hypothesis, since the conventional rationales for common stock splits do not apply. We find that splitting funds experience significant increases (relative to non-splitting matched funds) in net assets and shareholders. Stock splits do appear to enhance marketability. Although practitioners suggest that marketability is the primary reason for executing a split (e.g., Baker and Gallagher, 1980;Baker and Powell, 1993), few papers have rigorously explored this possibility. However, academic research on common stock splits has found some support for the marketability hypothesis. For example, Lamoureux and Poon (1987) and Maloney and Mulherin (1992) report that the number of shareholders increases following common stock splits. Schultz (1999) shows that the number of small orders increases following a stock split, and that the bulk of these orders are buys.2 Angel, Brooks, and Mathew (1997) show that trading activity by small investors increases following a stock split. Fernando, Krishnamurthy, and Spindt (1999) show that firms going public appear to use the offering price to influence investor interest in the issue. The evidence on common stock splits is also consistent with competing explanations, such as the trading-range hypothesis (Lakonishok and Lev, 1987;McNichols and Dravid, 1990), the signaling hypothesis (Asquith, Healy, and Palepu, 1989;Desai and Jain , 1997) or a fusion of the two (Ikenberry, Rankine, and Stice, 1996).According to the trading-range hypothesis, roundlot constraints and transaction cost considerations result in a preferred price level, which is restored by the split. According to the signaling hypothesis, managers implement stock splits to communicate favorable private information about the firm's prospects.However, these competing explanations do not fit very well the case of mutual fund splits.3 Existing transaction cost and constraint-driven explanations of a trading range do not apply, since mutual funds do not trade in ticks and any transaction costs or trade size restrictions are not related to share prices. Also, 1 We thank Chris James for suggesting this leader. 2 Schultz (1999) finds no support for tick-size explanations f o r s t o c k s p l i t s . H e c o n c l u d e s t h a t s p l i t s b r o a d e n t h e shareholder base by encouraging purchases of the firm's stock especially among small investors. However, Porter a n d We a v e r ( 1 9 9 7 ) c o n c l u d e t h a t a r e d u c t i o n i n t h e minimum tick size by the Toronto Stock Exchange reduced trade execution costs and may benefit small traders. 3 Excepting the recent paper by Rozeff (1998), mutual fund splits have not been widely studied in the academic literature. They were noticed early by Barker (1956).

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“…month and year before a split are large and that stock splits are unrelated to relative tick size as well that post-split prices have not declined over time. In short, even if prior studies report mixed results, corporate managers seem to care about the price level and use a broad set of tools to get the stock price into an optimal trading range and thereby attract investors, see Baker and Gallagher (1980).…”

mentioning

confidence: 99%

Do Stock Prices Conform to an Absolute Price Level?

Burnie

Ridder²

2011

SSRN Journal

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We examine nominal and real stock prices and the sequential price pattern of stock dividends, stock splits and Initial Public Offerings (IPOs). Using data for all firms listed in Sweden over the one hundred and twelve year period 1900-2011, we show that the average stock price has been fairly stable over time except for two decades in the beginning and end of the 20 th century. Inclusion of these periods yield a decline over time which is generally consistent with the drop in price levels found by Chittenden et al. (2010). In a multivariate setting, the frequency of stock dividends, stock splits and IPOs are positively related to the frequency for these events the prior year and recent market return. In further tests of the price change we find a positive relationship between the price difference to the median price for stock splits and stock dividends and a positive relationship to the market return for stock splits. We conclude that the primary reason for an action such as a stock split, is to fit the "norm" price of the market. * We would like to thank the discussants Mike Staunton at the 2010 EurHISTOCK Conference (Cambridge), Omid Sabbaghi at the 2011 EFA Conference (Savannah) and seminar participants for their many helpful comments. We also thank Mikael Segerlund for his excellent research assistance. Financial support from the Swedish Securities Dealers Association is gratefully acknowledged. The usual disclaimer applies. ** Corresponding author. 1 Do Stock Prices Conform to an Absolute Price Level? AbstractWe examine nominal and real stock prices and the sequential price pattern of stock dividends, stock splits and Initial Public Offerings (IPOs). Using data for all firms listed in Sweden over the one hundred and twelve year period 1900-2011, we show that the average stock price has been fairly stable over time except for two decades in the beginning and end of the 20th century. Inclusion of these periods yield a decline over time which is generally consistent with the drop in price levels found by Chittenden et al. (2010). In a multivariate setting, the frequency of stock dividends, stock splits and IPOs are positively related to the frequency for these events the prior year and recent market return. In further tests of the price change we find a positive relationship between the price difference to the median price for stock splits and stock dividends and a positive relationship to the market return for stock splits. We conclude that the primary reason for an action such as a stock split, is to fit the "norm" price of the market.

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Management's View of Stock Splits

Cited by 183 publications

References 6 publications

Stock Split Dan Likuiditas Saham Di Bei: Pengujian Menggunakan Hipotesis Likuiditas

Stock Split Dan Likuiditas Saham Di Bei: Pengujian Menggunakan Hipotesis Likuiditas

Is Share Price Related to Marketability? Evidence from Mutual Fund Share Splits

Do Stock Prices Conform to an Absolute Price Level?

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