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STOCK SPLIT AND STOCK MARKET REACTION: THE EVIDENCE OF INDONESIAN PUBLIC COMPANY
Corresponding Author(s) : Theresia Trisanti
Humanities & Social Sciences Reviews,
Vol. 8 No. 2 (2020): March
Abstract
Purpose of study: Go Public Company can raise funds for its operations through the sale of shares to investors. But if the stock price is too high, it can make the investors are not interested in buying stock. Stock market value can be reduced by the stock-split. This study aims to examine the effect of the stock split on abnormal return, stock price; trading volume and security return variability in the go public company on the Indonesia Stock Exchange.
Methodology: Researchers use data from 41 companies that were taken by purposive sampling from 2013 to 2016. The hypotheses in this study were tested using a Paired sample t-test.
Result: The researcher found that the stock split event causes the difference between the stock price, trading volume and security return variability between before and after the stock split. But the results found that the stock split did not cause any differences between the abnormal return before and after the stock split.
Application: The results of this study can provide an overview of the relationship between stock split events with stock prices and stock trading volumes.
Novelty/Originality of this study: This research using different methods compare with previous, namely multiple discriminant analysis. The multiple discriminant analysis methods are part of the discriminant analysis, which is a multivariate technique that includes the dependence method, namely the presence of variables.
Keywords
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- Asquith, P., Healy, P., & Palepu, K. (1989). Earnings and Stock Splits. The Accounting Review, 64(3), 387–403.
- Beltratti, A., Bortolotti, B., & Caccavaio, M. (2012). The stock market reaction to the 2005 split share structure reform in China. Pacific-Basin Finance Journal. https://doi.org/10.1016/j.pacfin.2012.01.004 DOI: https://doi.org/10.1016/j.pacfin.2012.01.004
- Byun, J., & Rozeff, M. S. (2003). Long-run Performance after Stock Splits: 1927 to 1996. Journal of Finance. https://doi.org/10.1111/1540-6261.00558 DOI: https://doi.org/10.1111/1540-6261.00558
- Chern, K. Y., Tandon, K., Yu, S., & Webb, G. (2008). The information content of stock split announcements: Do options matter? Journal of Banking and Finance, 32(6), 930–946. https://doi.org/10.1016/j.jbankfin.2007.07.008 DOI: https://doi.org/10.1016/j.jbankfin.2007.07.008
- Dennis, P., & Strickland, D. (2003). The effect of stock splits on liquidity and excess returns: Evidence from shareholder ownership composition. Journal of Financial Research. https://doi.org/10.1111/1475-6803.00063 DOI: https://doi.org/10.1111/1475-6803.00063
- Devos, E., Elliott, W. B., & Warr, R. S. (2015). CEO opportunism?: Option grants and stock trades around stock splits. Journal of Accounting and Economics, 60(1), 18–35. https://doi.org/10.1016/j.jacceco.2015.02.0044 DOI: https://doi.org/10.1016/j.jacceco.2015.02.004
- Hart, D. R., Jacobson, L. D., & Tang, J. (2013). To split or not to split: Assessment of Georges bank sea scallops in the presence of marine protected areas. Fisheries Research. https://doi.org/10.1016/j.fishres.2012.11.004 DOI: https://doi.org/10.1016/j.fishres.2012.11.004
- Ikenberry, D. L., Rankine, G., & Stice, E. K. (1996). What Do Stock Splits Really Signal? The Journal of Financial and Quantitative Analysis, 31(3), 357–375. https://doi.org/10.2307/2331396 DOI: https://doi.org/10.2307/2331396
- Julio, B., & Deng, Q. (2005). The Informational Content of Implied Volatility Around Stock Splits. SSRN. https://doi.org/10.2139/ssrn.831144 DOI: https://doi.org/10.2139/ssrn.831144
- Kalay, A., & Kronlund, M. (2012). The Market Reaction to Stock Split Announcements: Earnings Information After All. Working Paper, July, 1–48. https://doi.org/10.2139/ssrn.1027543 DOI: https://doi.org/10.2139/ssrn.1027543
- Kim, J. B., Li, Y., & Zhang, L. (2011). Corporate tax avoidance and stock price crash risk: Firm-level analysis. Journal of Financial Economics, 100(3), 639–662. https://doi.org/10.1016/j.jfineco.2010.07.007 DOI: https://doi.org/10.1016/j.jfineco.2010.07.007
- Lin, J. C., Singh, A. K., & Yu, W. (2009). Stock splits, trading continuity, and the cost of equity capital. Journal of Financial Economics. https://doi.org/10.1016/j.jfineco.2008.09.008 DOI: https://doi.org/10.1016/j.jfineco.2008.09.008
- Lyroudi, K., Dasilas, A., & Varnas, A. (2006). The valuation effects of stock splits in NASDAQ. Managerial Finance, 32(5), 401–414. https://doi.org/10.1108/03074350610657427 DOI: https://doi.org/10.1108/03074350610657427
- Martinez, A. L., & Castro, M. A. R. (2011). The smoothing hypothesis, Stock Returns and Risk in Brazil. BAR - Brazilian Administration Review, 8(1), 1–20. https://doi.org/10.1017/CBO9781107415324.004 DOI: https://doi.org/10.1017/CBO9781107415324.004
- McNichols, M., & Dravid, A. (1990). Stock Dividends, Stock Splits, and Signaling. The Journal of Finance, 45(3), 857–879. https://doi.org/10.2307/2328796 DOI: https://doi.org/10.2307/2328796
- Payne, J. L., & Thomas, W. B. (2003). Adjusted Stock-Split Empirical. The Accounting Review, 78(4), 1049–1067. https://doi.org/10.2308/accr.2003.78.4.1049 DOI: https://doi.org/10.2308/accr.2003.78.4.1049
- Pilotte, E., & Manuel, T. (1996). The market’s response to recurring events The case of stock splits. Journal of Financial Economics. https://doi.org/10.1016/0304-405X(95)00859-D DOI: https://doi.org/10.1016/0304-405X(95)00859-D
- Stickel, S. E. (1991). Common Stock Returns Surrounding Earnings Forecast Revisions: More Puzzling Evidence. The Accounting Review, 66(2), 402–416.
- Wang Sutrisno, Soffy Susilowati, & Francisca Yuniartha. (2000). Pengaruh Stock Split Terhadap Likuiditas Dan Return Saham Di Bursa Efek Jakarta . Jurnal Manajemen Dan Kewirausahaan.
- Zhu, S., & Xia, D. (2011). Accounting conservatism and stock pricing: an analysis based on China’s split-stock reform. Nankai Business Review International, 2(1), 23–47. https://doi.org/10.1108/20408741111113484 DOI: https://doi.org/10.1108/20408741111113484
References
Asquith, P., Healy, P., & Palepu, K. (1989). Earnings and Stock Splits. The Accounting Review, 64(3), 387–403.
Beltratti, A., Bortolotti, B., & Caccavaio, M. (2012). The stock market reaction to the 2005 split share structure reform in China. Pacific-Basin Finance Journal. https://doi.org/10.1016/j.pacfin.2012.01.004 DOI: https://doi.org/10.1016/j.pacfin.2012.01.004
Byun, J., & Rozeff, M. S. (2003). Long-run Performance after Stock Splits: 1927 to 1996. Journal of Finance. https://doi.org/10.1111/1540-6261.00558 DOI: https://doi.org/10.1111/1540-6261.00558
Chern, K. Y., Tandon, K., Yu, S., & Webb, G. (2008). The information content of stock split announcements: Do options matter? Journal of Banking and Finance, 32(6), 930–946. https://doi.org/10.1016/j.jbankfin.2007.07.008 DOI: https://doi.org/10.1016/j.jbankfin.2007.07.008
Dennis, P., & Strickland, D. (2003). The effect of stock splits on liquidity and excess returns: Evidence from shareholder ownership composition. Journal of Financial Research. https://doi.org/10.1111/1475-6803.00063 DOI: https://doi.org/10.1111/1475-6803.00063
Devos, E., Elliott, W. B., & Warr, R. S. (2015). CEO opportunism?: Option grants and stock trades around stock splits. Journal of Accounting and Economics, 60(1), 18–35. https://doi.org/10.1016/j.jacceco.2015.02.0044 DOI: https://doi.org/10.1016/j.jacceco.2015.02.004
Hart, D. R., Jacobson, L. D., & Tang, J. (2013). To split or not to split: Assessment of Georges bank sea scallops in the presence of marine protected areas. Fisheries Research. https://doi.org/10.1016/j.fishres.2012.11.004 DOI: https://doi.org/10.1016/j.fishres.2012.11.004
Ikenberry, D. L., Rankine, G., & Stice, E. K. (1996). What Do Stock Splits Really Signal? The Journal of Financial and Quantitative Analysis, 31(3), 357–375. https://doi.org/10.2307/2331396 DOI: https://doi.org/10.2307/2331396
Julio, B., & Deng, Q. (2005). The Informational Content of Implied Volatility Around Stock Splits. SSRN. https://doi.org/10.2139/ssrn.831144 DOI: https://doi.org/10.2139/ssrn.831144
Kalay, A., & Kronlund, M. (2012). The Market Reaction to Stock Split Announcements: Earnings Information After All. Working Paper, July, 1–48. https://doi.org/10.2139/ssrn.1027543 DOI: https://doi.org/10.2139/ssrn.1027543
Kim, J. B., Li, Y., & Zhang, L. (2011). Corporate tax avoidance and stock price crash risk: Firm-level analysis. Journal of Financial Economics, 100(3), 639–662. https://doi.org/10.1016/j.jfineco.2010.07.007 DOI: https://doi.org/10.1016/j.jfineco.2010.07.007
Lin, J. C., Singh, A. K., & Yu, W. (2009). Stock splits, trading continuity, and the cost of equity capital. Journal of Financial Economics. https://doi.org/10.1016/j.jfineco.2008.09.008 DOI: https://doi.org/10.1016/j.jfineco.2008.09.008
Lyroudi, K., Dasilas, A., & Varnas, A. (2006). The valuation effects of stock splits in NASDAQ. Managerial Finance, 32(5), 401–414. https://doi.org/10.1108/03074350610657427 DOI: https://doi.org/10.1108/03074350610657427
Martinez, A. L., & Castro, M. A. R. (2011). The smoothing hypothesis, Stock Returns and Risk in Brazil. BAR - Brazilian Administration Review, 8(1), 1–20. https://doi.org/10.1017/CBO9781107415324.004 DOI: https://doi.org/10.1017/CBO9781107415324.004
McNichols, M., & Dravid, A. (1990). Stock Dividends, Stock Splits, and Signaling. The Journal of Finance, 45(3), 857–879. https://doi.org/10.2307/2328796 DOI: https://doi.org/10.2307/2328796
Payne, J. L., & Thomas, W. B. (2003). Adjusted Stock-Split Empirical. The Accounting Review, 78(4), 1049–1067. https://doi.org/10.2308/accr.2003.78.4.1049 DOI: https://doi.org/10.2308/accr.2003.78.4.1049
Pilotte, E., & Manuel, T. (1996). The market’s response to recurring events The case of stock splits. Journal of Financial Economics. https://doi.org/10.1016/0304-405X(95)00859-D DOI: https://doi.org/10.1016/0304-405X(95)00859-D
Stickel, S. E. (1991). Common Stock Returns Surrounding Earnings Forecast Revisions: More Puzzling Evidence. The Accounting Review, 66(2), 402–416.
Wang Sutrisno, Soffy Susilowati, & Francisca Yuniartha. (2000). Pengaruh Stock Split Terhadap Likuiditas Dan Return Saham Di Bursa Efek Jakarta . Jurnal Manajemen Dan Kewirausahaan.
Zhu, S., & Xia, D. (2011). Accounting conservatism and stock pricing: an analysis based on China’s split-stock reform. Nankai Business Review International, 2(1), 23–47. https://doi.org/10.1108/20408741111113484 DOI: https://doi.org/10.1108/20408741111113484