Faithin Omaha eBook Collection

Download or read book Stock Splits as a Manipulation Tool written by Shourun Guo and published by . This book was released on 2009 with total page 27 pages. Available in PDF, EPUB and Kindle. Book excerpt: We document that acquiring firms are more likely than non-acquiring firms to split their stocks before making acquisition announcements, especially when acquisitions are financed by stock and when the deals are large. Our findings support the hypothesis that some acquiring firms use stock splits to manipulate their equity values prior to acquisition announcements. Using earnings quality as a proxy for firms' intention to manipulate, we find that acquirers with low earnings quality (i.e., acquirers that are more likely to use stock splits to manipulate their stock values) have lower long-run stock returns compared with their benchmarks, especially when the deals are financed with stock. In contrast, acquirers with high earnings quality do not show that pattern. Our evidence complements and extends the findings in the literature that some acquirers manipulate their stock prices before stock-swap acquisitions (Erickson and Wang, 1999; Louis, 2004). This study suggests that target shareholders should use information such as earnings quality and stock splits to discriminate among acquirers and ensure that exchanges are conducted on fair terms.