The Differences Between Stock Splits and Stock Dividends: Evidence from Denmark

Ken L. Bechmann, Johannes Raaballe

Publikation: Working paperForskning

Resumé

It is often asserted that stock splits and stock dividends are purely cosmetic events. However, many studies have documented several stock market effects associated with stock splits and stock dividends. This paper examines the effects of these two types of events for the Danish stock market. Consistent with the existing literature, the two events are associated with a significantly positive announcement effect of approximately 2.5%. However, when examining the two events more carefully, several important results are obtained. First, a firm's motivation for announcing the two events is completely different. Second, the positive stock market reaction is closely related to associated changes in a firm's payout policy, but the relationship varies for the two types of events. Finally, there is only very weak evidence for a change in the liquidity of the stock. On the whole, after controlling for the firm's payout policy, the results suggest that a stock split is a cosmetic event and that a stock dividend on its own is considered negative news.
It is often asserted that stock splits and stock dividends are purely cosmetic events. However, many studies have documented several stock market effects associated with stock splits and stock dividends. This paper examines the effects of these two types of events for the Danish stock market. Consistent with the existing literature, the two events are associated with a significantly positive announcement effect of approximately 2.5%. However, when examining the two events more carefully, several important results are obtained. First, a firm's motivation for announcing the two events is completely different. Second, the positive stock market reaction is closely related to associated changes in a firm's payout policy, but the relationship varies for the two types of events. Finally, there is only very weak evidence for a change in the liquidity of the stock. On the whole, after controlling for the firm's payout policy, the results suggest that a stock split is a cosmetic event and that a stock dividend on its own is considered negative news.
SprogEngelsk
Udgivelses stedFrederiksberg
UdgiverCopenhagen Business School [wp]
Antal sider27
ISBN (Trykt)8790705750
StatusUdgivet - 2004
NavnWorking Papers /Department of Finance. Copenhagen Business School
NummerWP 2004-1
ISSN0903-0352

Emneord

  • aktiekurser
  • aktiemarkeder
  • danmark
  • dividende
  • aktiesplit
  • aktiestørrelse

Citer dette

Bechmann, K. L., & Raaballe, J. (2004). The Differences Between Stock Splits and Stock Dividends: Evidence from Denmark. Frederiksberg: Copenhagen Business School [wp]. Working Papers /Department of Finance. Copenhagen Business School, Nr. WP 2004-1
Bechmann, Ken L. ; Raaballe, Johannes. / The Differences Between Stock Splits and Stock Dividends : Evidence from Denmark. Frederiksberg : Copenhagen Business School [wp], 2004. (Working Papers /Department of Finance. Copenhagen Business School; Nr. WP 2004-1).
@techreport{9a50cbe08eb611dba124000ea68e967b,
title = "The Differences Between Stock Splits and Stock Dividends: Evidence from Denmark",
abstract = "It is often asserted that stock splits and stock dividends are purely cosmetic events. However, many studies have documented several stock market effects associated with stock splits and stock dividends. This paper examines the effects of these two types of events for the Danish stock market. Consistent with the existing literature, the two events are associated with a significantly positive announcement effect of approximately 2.5{\%}. However, when examining the two events more carefully, several important results are obtained. First, a firm's motivation for announcing the two events is completely different. Second, the positive stock market reaction is closely related to associated changes in a firm's payout policy, but the relationship varies for the two types of events. Finally, there is only very weak evidence for a change in the liquidity of the stock. On the whole, after controlling for the firm's payout policy, the results suggest that a stock split is a cosmetic event and that a stock dividend on its own is considered negative news.",
keywords = "aktiekurser, aktiemarkeder, danmark, dividende, aktiesplit, aktiest{\o}rrelse, Stock splits, Stock dividends, Cash dividends, Signaling, Liquidity",
author = "Bechmann, {Ken L.} and Johannes Raaballe",
year = "2004",
language = "English",
isbn = "8790705750",
publisher = "Copenhagen Business School [wp]",
address = "Denmark",
type = "WorkingPaper",
institution = "Copenhagen Business School [wp]",

}

Bechmann, KL & Raaballe, J 2004 'The Differences Between Stock Splits and Stock Dividends: Evidence from Denmark' Copenhagen Business School [wp], Frederiksberg.

The Differences Between Stock Splits and Stock Dividends : Evidence from Denmark. / Bechmann, Ken L.; Raaballe, Johannes.

Frederiksberg : Copenhagen Business School [wp], 2004.

Publikation: Working paperForskning

TY - UNPB

T1 - The Differences Between Stock Splits and Stock Dividends

T2 - Evidence from Denmark

AU - Bechmann,Ken L.

AU - Raaballe,Johannes

PY - 2004

Y1 - 2004

N2 - It is often asserted that stock splits and stock dividends are purely cosmetic events. However, many studies have documented several stock market effects associated with stock splits and stock dividends. This paper examines the effects of these two types of events for the Danish stock market. Consistent with the existing literature, the two events are associated with a significantly positive announcement effect of approximately 2.5%. However, when examining the two events more carefully, several important results are obtained. First, a firm's motivation for announcing the two events is completely different. Second, the positive stock market reaction is closely related to associated changes in a firm's payout policy, but the relationship varies for the two types of events. Finally, there is only very weak evidence for a change in the liquidity of the stock. On the whole, after controlling for the firm's payout policy, the results suggest that a stock split is a cosmetic event and that a stock dividend on its own is considered negative news.

AB - It is often asserted that stock splits and stock dividends are purely cosmetic events. However, many studies have documented several stock market effects associated with stock splits and stock dividends. This paper examines the effects of these two types of events for the Danish stock market. Consistent with the existing literature, the two events are associated with a significantly positive announcement effect of approximately 2.5%. However, when examining the two events more carefully, several important results are obtained. First, a firm's motivation for announcing the two events is completely different. Second, the positive stock market reaction is closely related to associated changes in a firm's payout policy, but the relationship varies for the two types of events. Finally, there is only very weak evidence for a change in the liquidity of the stock. On the whole, after controlling for the firm's payout policy, the results suggest that a stock split is a cosmetic event and that a stock dividend on its own is considered negative news.

KW - aktiekurser

KW - aktiemarkeder

KW - danmark

KW - dividende

KW - aktiesplit

KW - aktiestørrelse

KW - Stock splits

KW - Stock dividends

KW - Cash dividends

KW - Signaling

KW - Liquidity

M3 - Working paper

SN - 8790705750

BT - The Differences Between Stock Splits and Stock Dividends

PB - Copenhagen Business School [wp]

CY - Frederiksberg

ER -

Bechmann KL, Raaballe J. The Differences Between Stock Splits and Stock Dividends: Evidence from Denmark. Frederiksberg: Copenhagen Business School [wp]. 2004.