Resource title

The Differences Between Stock Splits and Stock Dividends - Evidence from Denmark

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Resource description

AbstractIt is often asserted that stock splits and stock dividends are purely cosmetic events.However, many studies have documented several stock market effects associated withstock splits and stock dividends. This paper examines the effects of these two typesof events for the Danish stock market. Consistent with the existing literature, thetwo events are associated with a significantly positive announcement effect of ap-proximately 2.5%. However, when examining the two events more carefully, severalimportant results are obtained. First, a firm's motivation for announcing the twoevents is completely different. Second, the positive stock market reaction is closelyrelated to associated changes in a firm's payout policy, but the relationship varies forthe two types of events. Finally, there is only very weak evidence for a change in theliquidity of the stock. On the whole, after controlling for the firm's payout policy,the results suggest that a stock split is a cosmetic event and that a stock dividendon its own is considered negative news.Key words: Stock splits; Stock dividends; Cash dividends; Signaling; Liquidity

Resource author

Ken L. Bechmann, Johannes Raaballe

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Resource publish date

Resource language

eng

Resource content type

application/pdf

Resource resource URL

http://hdl.handle.net/10398/7181

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