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

Ken L. Bechmann, Johannes Raaballe

Research output: Working paperResearch

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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.
Original languageEnglish
Place of PublicationFrederiksberg
PublisherCopenhagen Business School [wp]
Number of pages27
ISBN (Print)8790705750
Publication statusPublished - 2004
SeriesWorking Papers / Department of Finance. Copenhagen Business School
NumberWP 2004-1


  • Stock splits
  • Stock dividends
  • Cash dividends
  • Signaling
  • Liquidity

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