Hostname: page-component-788cddb947-m6qld Total loading time: 0 Render date: 2024-10-19T15:45:44.389Z Has data issue: false hasContentIssue false
  • English
  • Français

The Effects of Reverse Splits on the Liquidity of the Stock

Published online by Cambridge University Press:  06 April 2009

Ki C. Han
Ki C. Han
Affiliation:
School of Management, Suffolk University, 8 Ashburton Place, Boston, MA 02108.
Get access Rights & Permissions [Opens in a new window]

Abstract

This study investigates the liquidity effects of reverse stock splits using bid-ask spread, trading volume, and the number of nontrading days as proxies for the liquidity of the stock. Results indicate a decrease in bid-ask spread and an increase in trading volume after reverse splits. More importantly, the number of nontrading days significantly declines following reverse splits. For the control group, however, no such changes are observed. These results suggest that reverse splits enhance the liquidity of the stock.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 30 , Issue 1 , March 1995 , pp. 159 - 169
Copyright
Copyright © School of Business Administration, University of Washington 1995

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

Amihud, Y., and Mendelson, H.. “Liquidity and Asset Prices: Financial Management Implications.” Financial Management, 17 (Spring 1988), 5–15.CrossRefGoogle Scholar
Atchison, M. D.; Butler, K. C.; and Simonds, R. R.. “Nonsynchronous Security Trading and Market Index Autocorrelation.” Journal of Finance, 42 (03 1987), 111–118.CrossRefGoogle Scholar
Bhardwaj, R. K., and Brooks, L. D.. “The January Anomaly: Effects of Low Share Price, Transaction Costs, and Bid-Ask Bias.” Journal of Finance, 47 (06 1992), 553–575.Google Scholar
Brennan, M. J., and Copeland, T. E.. “Stock Splits, Stock Prices, and Transaction Costs.” Journal of Financial Economics, 22 (10 1988), 83–101.CrossRefGoogle Scholar
Conover, W. J.Practical Nonparametric Statistics. New York, NY: John Wiley & Sons (1980).Google Scholar
Conroy, R. M.; Harris, R. S.; and Benet, B. A.. “The Effects of Stock Splits on Bid-Ask Spreads.” Journal of Finance, 45 (09 1990), 1285–1295.Google Scholar
Copeland, T. E. “Liquidity Changes following Stock Splits.” Journal of Finance, 34 (03 1979), 115–141.CrossRefGoogle Scholar
Demsetz, H. “The Cost of Transacting.” Quarterly Journal of Economics, 83 (02 1968), 35–53.Google Scholar
Eades, K. M.; Hess, P. J.; and Kim, E. H.. “On Interpreting Security Returns during the Ex-dividend Period.” Journal of Financial Economics, 13 (03 1984), 3–34.CrossRefGoogle Scholar
Edmister, R. O., and Subramanian, N.. “Determinants of Brokerage Commission Rates for Institutional Investors: A Note.” Journal of Finance, 37 (09 1982), 1087–1094.CrossRefGoogle Scholar
Fowler, D. J., and Rorke, C. H.. “Risk Measurement when Shares are Subject to Infrequent Trading: Comment.” Journal of Financial Economics, 12 (08 1983), 279–283.CrossRefGoogle Scholar
Grinblatt, M. S.; Masulis, R. W.; and Titman, S.. “The Valuation Effects of Stock Splits and Stock Dividends.” Journal of Financial Economics, 13 (12 1984), 461–490.CrossRefGoogle Scholar
Hawawini, G. A. “The Intertemporal Cross Price Behavior of Common Stocks: Evidence and Implications.” Journal of Financial Research, 3 (Fall 1980), 153–167.CrossRefGoogle Scholar
Lakonishok, J., and Lev, B.. “Stock Splits and Stock Dividends: Why, Who, and When.” Journal of Finance, 42 (09 1987), 913–932.CrossRefGoogle Scholar
Lakonishok, J.; Shleifer, A.; and Vishny, R. W.. “The Structure and Performance of the Money Management Industry.” Brookings Papers on Economic Activity: Microeconomics (1992), 339–391.CrossRefGoogle Scholar
Lakonishok, J., and Smidt, S.. “Volume and Turn-of-the-Year Behavior.” Journal of Financial Economics, 13 (09 1984), 435–456.CrossRefGoogle Scholar
Lamoureux, C. G., and Poon, P.. “The Market Reaction to Stock Splits.” Journal of Finance, 42 (12 1987), 1347–1370.CrossRefGoogle Scholar
Ofer, A. R., and Melnick, A.. “Price Deregulation in the Brokerage Industry: An Empirical Analysis.” Bell Journal of Economics, 9 (Autumn 1978), 633–641.CrossRefGoogle Scholar
Peterson, D. R., and Peterson, P. P.. “A Further Understanding of Stock Distributions: The Case of Reverse Stock Splits.” Journal of Financial Research, 15 (Fall 1992), 189–205.CrossRefGoogle Scholar
Radcliffe, R. C., and Gillespie, W.. “The Price Impact of Reverse Splits.” Financial Analysts Journal, 35 (01/02 1979), 63–67.CrossRefGoogle Scholar
Scholes, M., and Williams, J.. “Estimating Betas from Nonsynchronous Data.” Journal of Financial Economics, 5 (12 1977), 309–327.CrossRefGoogle Scholar
Spudeck, R. E., and Moyer, R. C.. “Reverse Splits and Shareholder Wealth: The Impact of Commissions.” Financial Management, 14 (Winter 1985), 52–56.CrossRefGoogle Scholar
Van Home, J. C.Financial Management and Policy. Englewood Cliffs, NJ: Prentice Hall (1992).Google Scholar
West, R. R., and Brouilette, A. B.. “Reverse Stock Splits … Harbinger of Bad Times or Valid Management Technique.” Financial Executive, 38 (01 1970), 12–17.Google Scholar
Woolridge, J. R., and Chambers, D. R.. “Reverse Splits and Shareholder Wealth.” Financial Management, 12 (Autumn 1983), 5–15.CrossRefGoogle Scholar