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Working Paper

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This paper examines whether favorable information conveyed by stock split announcements transfers to non-splitting firms within the same industry. We find that there exists intra-industry reaction; shareholders of non-splitting firms experience significant positive abnormal returns during the stock split announcement period of their industry counterparts. In addition, we find that industry-wide (level of concentration) and firm-specific characteristics (degree of similarity with the splitting firm, level of asymmetric information, and mispricing) are important determinants in explaining the impact of the announcements on non-splitting firms. We further document an increase in earnings subsequent to the announcements which is associated to the stock price reactions. However, we find little evidence that there is a decline in earnings volatility and find no significant relation between change in earnings volatility and announcement period returns.