Do stock splits signal future profitability?
- Gow-Cheng HuangAffiliated withDepartment of Accounting and Finance, Alabama State University
- , Kartono LianoAffiliated withDepartment of Finance and Economics, Mississippi State University
- , Ming-Shiun PanAffiliated withDepartment of Finance and Information Management & Analysis, Shippensburg University Email author
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This study examines whether stock split announcements contain information content about future profitability, measured in terms of future earnings change, future earnings, or future abnormal earnings. We find that the split announcement year has the highest earnings change and the earnings change declines substantially over the subsequent five years. Our empirical results show little evidence that stock splits are positively related to future profitability. In fact, stock splits are in general negatively related to future profitability in subsequent years after the announcement, except for dividend-paying firms with a split factor less than 0.5. This negative relation holds regardless of future profitability measure. Therefore, our empirical finding suggests that stock splits are not useful signals of a firm’s future earnings prospects.
KeywordsStock splits Signaling Future profitability
- Do stock splits signal future profitability?
Review of Quantitative Finance and Accounting
Volume 26, Issue 4 , pp 347-367
- Cover Date
- Print ISSN
- Online ISSN
- Kluwer Academic Publishers
- Additional Links
- Stock splits
- Future profitability
- Industry Sectors
- Author Affiliations
- 1. Department of Accounting and Finance, Alabama State University, Montgomery, AL, 36101-0271, USA
- 2. Department of Finance and Economics, Mississippi State University, Mississippi State, MS, 39762, USA
- 3. Department of Finance and Information Management & Analysis, Shippensburg University, Shippensburg, PA, 17257, USA