Do stock splits matter for returns, volatility, and liquidity?

New Evidence from Borsa Istanbul

Authors

  • Nihat Gumus
  • Ayse Caglayan Gumus

DOI:

https://doi.org/10.20525/ijrbs.v10i4.1250

Keywords:

Stock splits, Borsa Istanbul, return, risk, liquidity

Abstract

The purpose of this study is to investigate the impact of stock splits on the return, riskiness, and liquidity of stocks. Utilizing a sample of 94 stock splits taken place between 2010 and 2019 at Borsa Istanbul, the study analyzes the daily abnormal returns, change in volatility, and changes in volume around the stock split announcement and execution dates. The results display significant positive abnormal returns around the announcement date but not significant abnormal returns around the execution. The volatility and liquidity of stocks increase significantly around both announcement and execution dates. The findings are in line with the positive signaling, and liquidity hypotheses of stock split and with most of the observations reported in the empirical literature. The new evidence provided points out the lack of semi-strong form of market efficiency at Borsa Istanbul as far as the stock splits are considered.

References

Angel, J.J., (1997). Tick size, share prices, and stock splits. Journal of Finance, 52(2), 655-681.

Arbel, A., & Swanson, G. (1993). The role of information in stock split announcement effects. Quarterly Journal of Business and Economics, 32(2), 14-25.

Asquith, P., P. Healy, & K. Palepu, (1989). Earnings and stock splits. The Accounting Review, 64, 387-403.

Baker, H.K. & Gallagher, P.L. (1980). Management’s view of stock splits. Financial Management, 9, 73-77.

Baker, H.K. & Powell, G.E., (1992). Why companies issue stock splits. Financial Management, 21 (2), 11.

Baker, K. H. & Powell,G.E., (1993). Further evidence on managerial motives for stock splits. Quarterly Journal of Business and Economics, 32(3), 20-32.

Brennan, M. & Copeland, T. (1988). Stock splits, stock prices, and transaction costs. Journal of Financial Economics, 22(1), 83-101

Brennan, M. & Hughes, P.J. (1991). Stock prices and supply of information. Journal of Finance, 46 (5), 1665-1691.

Copeland, T. (1979). Liquidity changes following stock splits. Journal of Finance, 34(1), 115-142.

Erol, A.F., & Aytekin, S. (2018). Borsa ?stanbul Pay Piyasas? ?irketlerinin bedelsiz sermaye art?r?m? duyurular?n?n hisse senedi getirileri üzerindeki etkisinin de?erlendirilmesi. Mehmet Akif Ersoy Üniversitesi ?ktisadi ve ?dari Bilimler Fakültesi Dergisi, 5(3), 898-912.

Fama, E., Fisher, L., Jensen, M. & Roll, R. (1969). The adjustment of stock prices to new information. International Economic Review, 10(1), 1-21.

Ford, D. A., Nguyen, H. H., & Nguyen, V. T. (2012). Analyst coverage and market reaction around stock split announcements. Applied Financial Economics, 22(2), 135-145.

Grinblatt, M.S., Masulis, R.W. & Titman, S. (1984). The valuation effects of stock splits and stock dividends. Journal of Financial Economics, 13(4), 461-490.

Hendra, E., Handoko, B.L., & Ariyanto, S. (2020). Determinants of stock splits’ ex-date returns: empirical evidence from Indonesian Stock Market. Pertanika Jornal of Social Sciences & Humanities, 28 (2), 1539 – 1551.

Ikenberry, D.L., G. Rankine, & Stice, E. K. (1996). What Do Stock Splits Really Signal?. Journal of Financial and Quantitative Analysis, 31(3), 357- 375.

Küçüksille, E., & Mizrahi, R. (2015). Bedelsiz sermaye art?r?m? duyurular?n?n ?irketlerin piyasa de?erlerine etkisi: Borsa ?stanbul örne?i. Sosyal ve Be?eri Bilimler Ara?t?rmalar? Dergisi, 35, 129-149.

Lakonishok, J. & Lev, B. (1987). Stock splits and stock dividends: why, who, and when. Journal of Finance, 42(4), 913-932.

Lamoureux, C.G. & Poon, P. (1987). The market reaction to stock splits. Journal of Finance, 42(5), s. 1347-1370.

Leland, H.E. & Pyle, D.H. (1977). Asymmetries, financial structure, and financial intermediation. Journal of Finance, 8 (1), 371-387.

McNichols, M. & Dravid, A. (1990). Stock dividends, stock splits, and signaling. Journal of Finance, 45 (3), 857-879.

Podgórski, B., Pasierbek, K. (2020). The “Magic Action” of stock splits: evidence from the Warsaw Stock Exchange 2003–2017. Central European Management Journal, 28 (1), 66–80.

Rohit, B., Pinto, P., & Bolar, S. (2016). Impact of Stock Splits and Rights Issue Announcements on Market Price: Evidence from India. Drishtikon: A Management Journal, 7(2), 1-16.

Ross, A.S. (1977). The determination of financial structure: the incentive-signaling approach. Bell Journal of Economics, 8(1), 23-40.

Schultz, P. (2000). Stock splits, tick size, and sponsorship. Journal of Finance, 55 (1), 429-450.

Yildiz, I.S., (2003). An Analysis of stock splits in the ?stanbul stock exchange. (Unpublished master’s thesis). Middle East Technical University, Ankara, Turkey.

Downloads

Published

2021-06-17

How to Cite

Gumus, N., & Caglayan Gumus, A. (2021). Do stock splits matter for returns, volatility, and liquidity? New Evidence from Borsa Istanbul. International Journal of Research in Business and Social Science (2147- 4478), 10(4), 467–478. https://doi.org/10.20525/ijrbs.v10i4.1250

Issue

Section

Related Topics in Social Science