Stock‐Split Post‐Announcement Returns: Underreaction or Market Friction?

We explore the relationship between stock splits and subsequent long‐term returns during the period from 1950 to 2000. We find that, contrary to much previous research, firms do not exhibit positive long‐term post‐split returns. Instead, we find that significant positive returns after the announcement date do not persist after the actual date of the stock split. We also observe that abnormal returns are correlated with the price‐delay or market friction. We conclude that the stock‐split post‐announcement “drift” is only of short duration, and it is attributable to trading frictions rather than behavioral biases.     

Insider ownership and signals: evidence from stock split announcement effects

This study examines whether investors regard the level of insider ownership of a firm as useful for evaluating stock split decisions. Results show that the abnormal returns at the announcement of stock splits are positively related to the level of insider ownership. The results prevail even after controlling for other relevant factors. Further analysis indicates the positive relation exists for small firms, but not for large firms. This indicates the market evaluates stock split decisions within the context of both insider ownership and information asymmetry.     

The information content of stock split announcements: Do options matter?

We provide a new test of the informational efficiency of trading in stock options in the context of stock split announcements. These announcements tend to be associated with positive abnormal returns. Our traditional event study results show abnormal returns that are significantly lower for optioned than non-optioned stocks, whether traded on the NYSE, Amex, or Nasdaq. After controlling for market returns, capitalization, book-to-market ratio, and trading volume, we find that the abnormal returns are significantly lower for NYSE/Amex optioned than non-optioned stocks. Although the results for Nasdaq stocks are not as clear, the overall effects tend to be lower after optioning. These findings are consistent with the hypothesis that the prices of optioned stocks embody more information, diminishing the impact of the stock split announcement. They provide new evidence of the beneficial effects of options on their underlying stocks.     

资本市场国际影响力提升效应研究——来自A股纳入明晟(MSCI)新兴市场指数的证据

2018年5月15日,首批纳入明晟(MSCI)新兴市场指数的A股股票名单正式公布。我们发现,被纳入MSCI的股票(标的股票)在公告日前后有显著为正的累计超额收益。相较于主要特征相似的匹配股票,标的股票纳入MSCI后的分析师评级有显著提升。进一步研究表明,在公告日前后融资(融券)交易量显著上升(下降),而换手率没有明显变化,并且净融资交易与公告效应显著正相关。本文的发现表明,A股纳入MSCI这一事件具有明显的信息含量,传递了有关企业前景的正面信息,并促使本地市场聪明投资者进行更活跃的交易,这对促进价格发现、促成价值投资具有一定的推动作用。     

Stock splits, trading continuity, and the cost of equity capital

We hypothesize that managers use stock splits to attract more uninformed trading so that market makers can provide liquidity services at lower costs, thereby increasing investors’ trading propensity and improving liquidity. We examine a large sample of stock splits and find that, consistent with our hypothesis, the incidence of no trading decreases and liquidity risk is lower following splits, implying a decline in latent trading costs and a reduced cost of equity capital. Further, split announcement returns are correlated with the improvements in both liquidity levels and liquidity risk. Our analysis suggests nontrivial economic benefits from liquidity improvements, with less liquid firms benefiting more from stock splits.     

Insider Trading around Dividend Announcements: Theory and Evidence

The informational role of strategic insider trading around corporate dividend announcements is studied based on the efficient equilibrium in a signalling model with endogenous insider trading. Insider trading immediately prior to the announcement of dividend initiations has significant explanatory power. For firms with insider selling prior to the dividend initiation announcement, the excess returns are negative and significantly lower than for the remaining firms (with no insider trading or just insider buying) as implied by our model. Another implication is that dividend increases may elicit a positive or negative stock price response depending on the firm's investment opportunities.     

The impact of regulation FD on the information environment: evidence from the stock market response to stock split announcements

This paper examines the information environment effects of regulation fair disclosure (Reg FD). We investigate the stock market response to stock splits in the pre- and post-regulation periods. We find that abnormal returns around split announcement are positive in both periods, but the magnitude of the returns is smaller in the post-FD period relative to the pre-FD period. The difference between the pre- and post-FD period abnormal returns persists even after we control for factors that may affect split announcement returns. We also find that the magnitude of the association between announcement returns and the unexpected portion of the split factor has increased post-regulation. Our analysis of performance trends for split firms reveals that patterns of profitability and changes in profitability in the years around stock splits are similar in the pre- and post-FD periods. However, we find that announcement returns are associated with lagged profitability changes in the pre-FD period, but with future profitability changes in the post-FD period. Collectively, our results imply that Reg FD has reduced information asymmetry and improved price efficiency.     

Return Performance Surrounding Reverse Stock Splits: Can Investors Profit?

We examine the long-run return performance of over 1,600 firms with reverse stock splits. These stocks record statistically significant negative abnormal returns over the three-year period following the month of the reverse split. The sample firms experience poor operating performances over the four years that include and follow the year of the reverse split, which suggests informational inefficiencies. Because these stocks have unique financial characteristics, we also show that they would be very difficult to sell short. Thus, arbitrageurs would be restricted in their ability to earn abnormal profits, even if they correctly anticipated a price decline.     

并购重组前的知情交易行为研究

并购重组中基于内幕信息的知情交易行为既是监管重点,也是学术界关注的热点问题。本文以2006—2020年我国上市公司并购重组事件为样本,考察并购重组前的知情交易行为对并购公告收益的影响。研究发现：并购重组前的知情交易行为引发了主并公司股价的提前反应,从而降低了并购公告时的市场反应,这一现象是由内幕信息泄露引起,且内幕信息主要来源于包括员工在内的公司内部人,而非机构投资者。进一步分析表明,改善信息环境可以有效缓解并购重组的信息泄露问题,体现为知情购买交易的信息泄露效应受到分析师跟踪、审计质量和问询函制度的有效制约。本文研究深化了现有的并购重组内幕交易行为研究,为实施精准监管和防范内幕交易等政策提供了一定参考和依据。     

If It's Good for the Firm,It's Good for Me: Insider Trading and Repurchases Motivated by Undervaluation

My findings suggest that information inherent in insider trading can be used to identify undervalued repurchasing firms. I examine the relation between insider trading and the performance of open market repurchase (OMR) firms. I show that firms with high net insider buying prior to OMR announcements not only earn abnormal stock returns in both the short‐ and long‐run, but also exhibit better operating performance. Overall, the evidence is consistent with insiders timing their trades prior to OMR announcements.     

The information content of stock splits

This study examines whether stock splits contain information content about future operating performance or whether splits are undertaken by firms to realign their share prices and to improve trading liquidity. In the four years following split announcements, splitting firms do not experience improved operating performance relative to non-splitting firms. Furthermore, stock split signals are not related to future profitability. The positive announcement effect can be explained by lower share prices and improved market liquidity following stock splits but not by split signals and post-split operating performance. Our results show very little evidence that stock splits signal improvement in long-run operating performance and are more consistent with the trading range/liquidity hypothesis.     

INSIDER TRADING EFFECTS ON STOCK RETURNS AROUND OPEN-MARKET STOCK REPURCHASE ANNOUNCEMENTS: AN EMPIRICAL STUDY

In this paper we empirically examine the effects of insider trading activities, the percentage of common shares outstanding authorized for repurchase, and management ownership on stock returns around open-market stock repurchase announcements. The study is conducted on a sample of 204 firms that announced open-market stock repurchases between 1982 and 1990. Results show that insider trading activities during the month that immediately precedes the announcement have a significant effect. While stockholders of firms with insider net selling activities earn positive excess returns, those of firms with insider net buying activities earn larger and more significant excess returns. Insider trading activities during more distant periods do not show any effects on stock returns. Results also indicate that management ownership has a significant positive effect on stock returns, and this effect is more positive when the percentage of common shares outstanding authorized for repurchase is large.     

IQ and corporate insiders’ decisions to time insider and outsider trading

We examine how corporate insiders’ cognitive ability (IQ) affects their decisions to time insider and outsider trading before abnormal stock price changes. Our analysis of archival data on male corporate insiders in Sweden shows they are less prone to time their insider selling and to sell in larger amounts, before abnormal stock price declines as IQ increases. We also find that insiders with a higher IQ are better at timing their outsider buying. Taken together, our results show that corporate insiders’ IQ affects their trading decisions differently, depending on whether they are trading in their insider or outsider stocks.     

Another January effect—Evidence from stock split announcements

This paper examines whether there is a January effect in the propensity and abnormal returns of stock split announcements. It provides primary evidence in the investigation of using monthly effects to explain the patterns of stock splits. The results show that the January effect exists in the likelihood of the occurrence of share splits and in the associated short-term abnormal returns. We also find that another monthly effect—the Halloween effect—exists in stock split announcements. However, the January effect has a much larger and considerably more significant impact on the probability and returns of these announcements. The results of this paper shed light on why we observe patterns in the announcement of corporate events.     

Short-Selling Prior to Earnings Announcements

This paper examines short‐sales transactions in the five days prior to earnings announcements of 913 Nasdaq‐listed firms. The tests provide evidence of informed trading in pre‐announcement short‐selling because they reveal that abnormal short‐selling is significantly linked to post‐announcement stock returns. Also, the tests indicate that short‐sellers typically are more active in stocks with low book‐to‐market valuations or low SUEs. The levels of pre‐announcement short‐selling, however, mostly appear to reflect firm‐specific information rather than these fundamental financial characteristics. We believe that these results should encourage financial market regulators to consider providing more extensive and timely disclosures of short‐selling to investors.     

REIT Stock Splits and Liquidity Changes

This study examines the motive of stock splits made by REITs. We find that REIT liquidity increases after the split announcement. However, the increase in liquidity is limited to days around the split announcement. After the ex-date, the liquidity tends to revert back to the pre-split level. We find that the positive market reaction around the announcement date is positively related to the change in short-term liquidity but not to the change in long-term liquidity. The announcement effect is also not correlated with future changes in operating performance. Overall, our results suggest that REITs split their share to attract investors’ attention rather than to signal or to improve trading liquidity in the long run.     

Prebid Run‐Ups Ahead of Canadian Takeovers: How Big Is the Problem?

This paper studies the price‐volume dynamics ahead of takeover announcements for 399 Canadian firms from 1985 to 2002. I find evidence consistent with insiders trading illegally, creating both abnormal returns (ARs) and abnormal turnover (AT) ahead of the announcement. The rise in AT begins far ahead of the actual announcement, accompanied by ARs in the last five trading days, consistent with more informed trading. Data on disclosed insider trading indicate a sharp increase in volume prior to the takeover announcement, suggesting that insiders make use of private information. This study confirms the importance of AT for triggering an insider trading investigation.     

Microstructure and reverse stock splits

In this paper we show that, similar to NYSE/AMEX stocks, NASDAQ stocks exhibit significant ex date returns for reverse stock splits. Although the 10-day cumulative return after the ex date is close to –10%, this does not violate market efficiency, because the average bid-ask spread for the reverse split stock is at least double this return. We also document that these large negative returns are mostly due to a drop in the ask price while bid prices barely change at all. Furthermore, the ex date returns are negatively related to trading volume.These results suggest that there is abnormal selling and a significant buildup of market makers' inventories near the ex date. To reduce the inventory buildup, market makers lower ask prices to induce buying by investors, resulting in the observed negative returns. Lowering bid prices, an alternative strategy for reducing inventories, is not attractive to market makers due to competitive factors and the reduction of commissions associated with a smaller number of transactions. Notably, selling investors have no incentives to sell their stocks early to avoid the observed negative ex date return, since this return is largely an ask price phenomenon and does not represent realized returns to sellers.     

Poison Pill Securities: Shareholder Wealth and Insider Trading

Existing empirical studies on poison pill securities have examined their overall effect on shareholder wealth. This paper segregates the wealth-increasing poison pills from the value-reducing ones by examining the pattern of insider trading activity prior to the pill adoption announcement. Our results show that pill adoptions that are preceded by net insider purchases are associated with significant stock price increases. This finding is consistent with the proposition that corporate insiders buy their own securities because they do not view the adoption of poison pills as an antitakeover strategy, but rather one that enables the board of directors to extract a greater share of the economic gains from the bidder. Our findings also indicate that firms with net insider sales prior to pill adoption announcement experience generally negative but insignificant changes in value. Finally, firms with no insider trading or with an equal number of insider purchases and sales register marginally significant negative returns.     

The Effect Of Stock Splits On Liquidity And Excess Returns: Evidence From Shareholder Ownership Composition

We examine the influence of firm ownership composition on both the abnormal returns at the announcement of a stock split and liquidity changes following a stock split. We find three results. First, the largest post‐split increase in institutional ownership occurs for firms that had low institutional ownership before the split. Second, changes in liquidity are negatively related to the level of institutional ownership before the split. Last, the abnormal return following a split is negatively related to the level of institutional ownership before the split. These findings are important as they shed new light on the source of stock split announcement returns.