The Impact Of Stock Split Announcements On Stock Price: A Test Of Market Efficiency

The purpose of this study is to test whether the investor can make an above normal return by relying on public information impounded in a stock split announcement. Using risk adjusted event study methodology, this study tests "How" and "When" public announcements of forward and reverse stock splits affect stock price. Stock split announcement samples include 38 two for one, 39 three for two, and 10 reverse splits. A total of 36,714 observations for the announcement samples and the corresponding S&P 500 stock index were analyzed using standard risk adjusted event study methodology. Results suggest that the firms' public stock split announcements did not affect stock price on the announcement day.