Stock splits and bond yields: Isolating the signaling hypothesis

Publisher:
Wiley-Blackwell
Publication Type:
Journal Article
Citation:
The Financial Review, 2010, 45 (2), pp. 375 - 386
Issue Date:
2010-01
Full metadata record
Files in This Item:
Filename Description Size
Thumbnail2008008174OK.pdf245.32 kB
Adobe PDF
One explanation offered for stock splits is that the split signals positive information by reducing the stock price range in expectation of improved future prospects. Price declines also lead to changes in stock price dynamics, but related securities are not subject to these other changes and therefore can be used to provide a separate assessment of the markets interpretation of the split. We examine corporate bond issues around stock splits and find a significant decline in the bond yield spread following stock splits, supporting the signaling hypothesis. We also confirm improvements in forecasted and realized earnings subsequent to stock splits.
Please use this identifier to cite or link to this item: