The role of information in stock split announcement effects

Abstract

This study investigates the role of information in stock split announcement effects by examining pure stock split announcements across a range of stocks differing in terms of information richness. Pure split announcements are defined as those that have no other firmspecific news in the six day period around the announcement day. The positive proxy for information richness is the number of analysts making annual estimates of firm earnings. The results presented support the hypotheses that market anticipation of split announcements is related directly to the stocks' information richness; the magnitude of the announcement effect (event days 0 and +1) is greater for informationpoor stocks; the postannouncement market price adjustment process is rapid and complete for information-rich stocks, but is slow and incomplete for information-poor stocks.

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