Faithin Omaha eBook Collection

Download or read book The Market Reaction to Stock Splits - Evidence from Germany written by Christian Wulff and published by . This book was released on 2003 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper investigates the market reaction to stock splits, using a set of German firms. Similar to the findings in the U.S., I find significant positive abnormal returns around boththe announcement and the execution day of German stock splits. I also observe an increase in return variance and in liquidity after the ex-day. Apparently, legal restrictions strongly limit the ability of German companies to use a stock split for signaling. I find that abnormal returns around the announcement day are consistently much lower in Germany than in the U.S. Further, I find that abnormal returns around the announcement day are not related to changes in liquidity, but (negatively) to firm size, thus lending support to the neglected firm hypothesis. On the methodological side the effect of thin trading on event study results is examined. Using trade-to-trade returns increases the significance of abnormal returns, but the difference between alternative return measurement methods is relatively small in short event periods. Thus, the observed market reaction cannot be attributed to measurement problemscaused by thin trading.