Market Reaction around the Event of a Stock Split: An Analysis on the Dhaka Stock Exchange

  •  Md Saimum Hossain    


Stock splits, in an efficient market, are not supposed to bear any consequence on the price of a company’s stocks. However, both corporate management and regulators have tended to go through this exercise which make us think that through a stock split, either a management-induced event or a mandatory regulatory event, companies and regulators must expect to gain something. This study analyzes one such event of regulator-induced stock split in the Bangladesh markets that took place in December 2011. After studying the empirical results based on the sample of 117 mandatory stock splits in December 2011, it is found that there is overall sort of an equal distribution of positive and negative excess return pattern on both sides of the event date. Moreover, we accept the null hypothesis since the calculated t-values for the aer and caer during the 30 trading days (the event window) fall mostly within the acceptance region. Therefore, unlike some of the views presented in earlier literature concerning effects of stock splits in different markets around the world, this study found that stock splits, especially when they are undertaken as per regulatory directives, are basically a neutral event. One strong explanation for this finding can be the mandatory nature of the split because most of the previous studies undertaken used sample data sets containing management-decision induced stock splits.

This work is licensed under a Creative Commons Attribution 4.0 License.