Reverse Splits and Shareholder Wealth

Abstract

perfect capital markets, neither reverse nor direct splits influence shareholder wealth. In practice, however, market imperfections such as transactions costs and information asymmetries can be cited in defending splits as management tools. In their seminal article, Fama, Fisher, Jensen, and Roll [2] analyze the impact of direct splits on stockholder returns. Their conclusion, which has been corroborated in subsequent studies, is that direct splits, per se, have no effect on shareholder wealth.

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