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This paper comprehensively studies the effects of stock splits on the market characteristics of the stocks and also tries to give an explanation for the results referring to the existing hypotheses and previous empirical results. We investigate the trading activity, liquidity, information asymmetry, and the investors' behavior changes around the stock splits. We find that the stock splits tend to increase the trading activity, to enhance the market liquidity, to reduce the information asymmetry, and to lower the probability of informed trading. Several main existing explanations—signaling hypothesis, trading range hypothesis, and tick size hypothesis—are largely supported by our empirical findings. J. Japanese Int. Economies22 (3) (2008) 417–438. |
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