A study about who is interested in stock splitting and why: considering companies, shareholders or managers

Paper: arXiv 2510.15879

Authors: Jiaquan Nicholas Chen, Marcel Ausloos

Abstract

There are many misconceptions around stock prices, stock splits, shareholders, investors, and managers behaviour about such informations due to a number of confounding factors. This paper tests hypotheses with a selected database, about the question ‘‘is stock split attractive for companies?’’ in another words, ‘‘why companies split their stock?’’, ‘‘why managers split their stock?’’, sometimes for no benefit, and ‘‘why shareholders agree with such decisions?’’. We contribute to the existing knowledge through a discussion of nine events in recent (selectively chosen) years, observing the role of information asymmetries, the returns and traded volumes before and after the event. Therefore, calculating the beta for each sample, it is found that stock splits (i) affect the market and slightly enhance the trading volume in a short-term, (ii) increase the shareholder base for its firm, (iii) have a positive effect on the liquidity of the market. We concur that stock split announcements can reduce the level of information asymmetric. Investors readjust their beliefs in the firm, although most of the firms are mispriced in the stock split year.

Complexity vs Empirical Score

• Math Complexity: 2.0/10
• Empirical Rigor: 2.5/10
• Quadrant: Philosophers — conceptual discussion, limited math and data

Why this score: The paper relies heavily on qualitative summaries and literature discussions rather than rigorous quantitative modeling or robust econometric testing. Examining only nine selectively chosen events provides insufficient empirical backing and severely limits both novelty and statistical validity.

Research Flowchart

  flowchart TD
    A["Research Goal: Why do companies, managers, & shareholders engage in stock splits?"] --> B["Select Sample & Database: 9 Recent Stock Split Events"]
    B --> C["Event Study Methodology: Measure Before/After Returns, Volumes, & Beta"]
    C --> D["Analyze Effects on Information Asymmetry & Market Mispricing"]
    D --> E["Findings: Short-term Trading Volume & Market Liquidity Increase"]
    D --> F["Findings: Shareholder Base Expands & Information Asymmetry Decreases"]