Document Type

Article

Publication Date

2019

Abstract

This paper aims to differentiate between optimistic splits and overoptimistic/opportunistic splits. Although markets do not distinguish between these two groups at the split announcement time, optimistic (over-optimistic/opportunistic) splits precede positive (negative) long-term buy-and-hold abnormal returns. Using the calendar month portfolio approach, we show that the zero-investment, ex-ante identifiable, and fully implementable trading strategy proposed in this paper can generate economically and statistically significant positive abnormal returns. Our findings indicate that pre-split earnings management and how it relates to managers’ incentives, is an omitted variable in the studies of post-split long-term abnormal returns.

Comments

Original published version available at https://doi.org/10.1111/fire.12192.

First Page

801

Last Page

831

Publication Title

Financial Review

DOI

10.1111/fire.12192

Included in

Finance Commons

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