Stock Splits and Abnormal Returns in an Overactive Internet Market Segment (Manuscripts‪)‬

INTRODUCTION The significance of dividend policy to managerial finance continues to be a topic of contention. The work on the role of dividend policy is quite extensive. Stock splits are perhaps even more questionable in terms of the rationale and results of their use. A variety of arguments concerning stock splits have been pursued in past literature. Copeland (1979) provides six reasons for splitting a stock: maintenance of a price range for the firm's shares, reduction of odd-lot trading (since high stock price reduces divisibility), creation of an increase in trading volume, increased brokerage revenue, lowering of bid-ask price, and to encourage an increase the number of shareholders. Ikenberry, Rankine & Stice (1996) found that stock splits most often occur when there has been a substantial increase in the price of the stock, or when a stock trades at a high price. They also found that stock splits allow the investor an excess return during the period after the announcement. Additionally, they discovered that only short-term positive results were achieved when firms had low pre-split share prices.