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

• 成果类型: Article
• 署名作者: Lin, Ji-Chai; Singh, Ajai K.; Yu, Wen
• 署名单位: Louisiana State University System; Louisiana State University; University System of Ohio; Case Western Reserve University; University of St Thomas Minnesota
• 刊物名称: JOURNAL OF FINANCIAL ECONOMICS
• ISSN/ISSBN: 0304-405X
• DOI: 10.1016/j.jfineco.2008.09.008
• 发表日期: 2009
• 页码: 474-489
• 关键词: STOCK SPLITS; Trading continuity; liquidity risk; Cost of equity capital

摘要

We hypothesize that managers use stock splits to attract more uninformed trading so that market makers can provide liquidity services at lower costs, there by 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. (C) 2009 Elsevier B.V. All rights reserved.