Institutional ownership around stock splits

Fengyu Li; Mark H. Liu; Yongdong (Eric) Shi

doi:10.1016/j.pacfin.2017.06.011

Institutional ownership around stock splits

Fengyu Li, Mark H. Liu, Yongdong (Eric) Shi

Finance and Quantitative Methods

Research output: Contribution to journal › Article › peer-review

4 Scopus citations

Abstract

Studies on the underlying reasons for stock splits can be broadly categorized into two groups: those argue that firms use stock splits to signal favorable private information to the market and those argue that stock splits are used to improve liquidity. We shed light on this issue by examining the change in institutional holdings around stock splits and find that institutional investors, especially short-term investors, increase their holding of the splitting firm's stock. The change in short-term institutional ownership is positively related to the improvement in firm's information environment, especially for less liquid stocks and stocks that are not widely held by institutional investors. Our evidence supports the liquidity hypothesis instead of the signaling hypothesis of stock splits.

Original language	English
Pages (from-to)	14-40
Number of pages	27
Journal	Pacific Basin Finance Journal
Volume	46
DOIs	https://doi.org/10.1016/j.pacfin.2017.06.011
State	Published - Dec 2017

Bibliographical note

Funding Information:
We thank Alice Bonaime, Tom Chemmanur, Paul Childs, Chris Clifford, Kristine Hankins, Hui He, Brad Jordan, Susan Jordan, Dong Lee, Don Mullineaux, and seminar participants at Dongbei University of Finance and Economics and University of Kentucky for helpful comments. We appreciate the financial support of the Fundamental Research Funds for the National Natural Science Foundation of China [Grant Nos. 71471031 , 71171036 ], the major project of the National Social Science Foundation of China [Grant No. 14AZD089 ], Distinguished Professor Support Plan of Liaoning Province [Grant No. [2013] 204 ], the Humanity and Social Science Foundation of Ministry of Education of China [Grant No. 15YJA790092 ; 15YJC790041 ], Social Science Planning Key Project of Liaoning Province [Grant No. L15AGL003 ], the Humanity and Social Science Foundation of Department of Education of Liaoning Province [Grant No. LN2016JD008 , ZJ2013043 ], Youth Scientific Research Personnel Training Project of Dongbei University of Finance & Economics [Grant No. DUFE2015Q08 ]. All errors and omissions are our own.

Publisher Copyright:
© 2017 Elsevier B.V.

Keywords

Idiosyncratic volatility
Institutional investors
Liquidity
Price informativeness
Stock splits

ASJC Scopus subject areas

Finance
Economics and Econometrics

Access to Document

10.1016/j.pacfin.2017.06.011

Cite this

@article{6f47805cf31f4f1ca22468f172089d0c,

title = "Institutional ownership around stock splits",

abstract = "Studies on the underlying reasons for stock splits can be broadly categorized into two groups: those argue that firms use stock splits to signal favorable private information to the market and those argue that stock splits are used to improve liquidity. We shed light on this issue by examining the change in institutional holdings around stock splits and find that institutional investors, especially short-term investors, increase their holding of the splitting firm's stock. The change in short-term institutional ownership is positively related to the improvement in firm's information environment, especially for less liquid stocks and stocks that are not widely held by institutional investors. Our evidence supports the liquidity hypothesis instead of the signaling hypothesis of stock splits.",

keywords = "Idiosyncratic volatility, Institutional investors, Liquidity, Price informativeness, Stock splits",

author = "Fengyu Li and Liu, {Mark H.} and Shi, {Yongdong (Eric)}",

note = "Funding Information: We thank Alice Bonaime, Tom Chemmanur, Paul Childs, Chris Clifford, Kristine Hankins, Hui He, Brad Jordan, Susan Jordan, Dong Lee, Don Mullineaux, and seminar participants at Dongbei University of Finance and Economics and University of Kentucky for helpful comments. We appreciate the financial support of the Fundamental Research Funds for the National Natural Science Foundation of China [Grant Nos. 71471031 , 71171036 ], the major project of the National Social Science Foundation of China [Grant No. 14AZD089 ], Distinguished Professor Support Plan of Liaoning Province [Grant No. [2013] 204 ], the Humanity and Social Science Foundation of Ministry of Education of China [Grant No. 15YJA790092 ; 15YJC790041 ], Social Science Planning Key Project of Liaoning Province [Grant No. L15AGL003 ], the Humanity and Social Science Foundation of Department of Education of Liaoning Province [Grant No. LN2016JD008 , ZJ2013043 ], Youth Scientific Research Personnel Training Project of Dongbei University of Finance & Economics [Grant No. DUFE2015Q08 ]. All errors and omissions are our own. Publisher Copyright: {\textcopyright} 2017 Elsevier B.V.",

year = "2017",

month = dec,

doi = "10.1016/j.pacfin.2017.06.011",

language = "English",

volume = "46",

pages = "14--40",

}

TY - JOUR

T1 - Institutional ownership around stock splits

AU - Li, Fengyu

AU - Liu, Mark H.

AU - Shi, Yongdong (Eric)

N1 - Funding Information: We thank Alice Bonaime, Tom Chemmanur, Paul Childs, Chris Clifford, Kristine Hankins, Hui He, Brad Jordan, Susan Jordan, Dong Lee, Don Mullineaux, and seminar participants at Dongbei University of Finance and Economics and University of Kentucky for helpful comments. We appreciate the financial support of the Fundamental Research Funds for the National Natural Science Foundation of China [Grant Nos. 71471031 , 71171036 ], the major project of the National Social Science Foundation of China [Grant No. 14AZD089 ], Distinguished Professor Support Plan of Liaoning Province [Grant No. [2013] 204 ], the Humanity and Social Science Foundation of Ministry of Education of China [Grant No. 15YJA790092 ; 15YJC790041 ], Social Science Planning Key Project of Liaoning Province [Grant No. L15AGL003 ], the Humanity and Social Science Foundation of Department of Education of Liaoning Province [Grant No. LN2016JD008 , ZJ2013043 ], Youth Scientific Research Personnel Training Project of Dongbei University of Finance & Economics [Grant No. DUFE2015Q08 ]. All errors and omissions are our own. Publisher Copyright: © 2017 Elsevier B.V.

PY - 2017/12

Y1 - 2017/12

N2 - Studies on the underlying reasons for stock splits can be broadly categorized into two groups: those argue that firms use stock splits to signal favorable private information to the market and those argue that stock splits are used to improve liquidity. We shed light on this issue by examining the change in institutional holdings around stock splits and find that institutional investors, especially short-term investors, increase their holding of the splitting firm's stock. The change in short-term institutional ownership is positively related to the improvement in firm's information environment, especially for less liquid stocks and stocks that are not widely held by institutional investors. Our evidence supports the liquidity hypothesis instead of the signaling hypothesis of stock splits.

AB - Studies on the underlying reasons for stock splits can be broadly categorized into two groups: those argue that firms use stock splits to signal favorable private information to the market and those argue that stock splits are used to improve liquidity. We shed light on this issue by examining the change in institutional holdings around stock splits and find that institutional investors, especially short-term investors, increase their holding of the splitting firm's stock. The change in short-term institutional ownership is positively related to the improvement in firm's information environment, especially for less liquid stocks and stocks that are not widely held by institutional investors. Our evidence supports the liquidity hypothesis instead of the signaling hypothesis of stock splits.

KW - Idiosyncratic volatility

KW - Institutional investors

KW - Liquidity

KW - Price informativeness

KW - Stock splits

UR - http://www.scopus.com/inward/record.url?scp=85028577758&partnerID=8YFLogxK

UR - http://www.scopus.com/inward/citedby.url?scp=85028577758&partnerID=8YFLogxK

U2 - 10.1016/j.pacfin.2017.06.011

DO - 10.1016/j.pacfin.2017.06.011

M3 - Article

AN - SCOPUS:85028577758

VL - 46

SP - 14

EP - 40

ER -

Institutional ownership around stock splits

Abstract

Bibliographical note

Keywords

ASJC Scopus subject areas

Access to Document

Other files and links

Fingerprint

Cite this