|
Abstract:
|
Abstract
It is often asserted that stock splits and stock dividends are purely cosmetic events.
However, many studies have documented several stock market effects associated with
stock splits and stock dividends. This paper examines the effects of these two types
of events for the Danish stock market. Consistent with the existing literature, the
two events are associated with a significantly positive announcement effect of ap-
proximately 2.5%. However, when examining the two events more carefully, several
important results are obtained. First, a firm's motivation for announcing the two
events is completely different. Second, the positive stock market reaction is closely
related to associated changes in a firm's payout policy, but the relationship varies for
the two types of events. Finally, there is only very weak evidence for a change in the
liquidity of the stock. On the whole, after controlling for the firm's payout policy,
the results suggest that a stock split is a cosmetic event and that a stock dividend
on its own is considered negative news.
Key words: Stock splits; Stock dividends; Cash dividends; Signaling; Liquidity |
This work is licensed under a Creative Commons License.
