Rationality of Stock Splits: The Target-Price Habit Hypothesis

Rationality of Stock Splits: The Target-Price Habit Hypothesis The question of why firms exercise stock splits has inspired research for some time. Signalling and optimal trading range hypotheses are possible explanations for stock splits. This paper considers the sociological aspects of maintaining a stable target-price habit. It argues that one of the principal reasons for stock splits is to conform to the market norm, which is established by mutual reinforcement among financial analysts, managers, and investors. Models based on economic reasons alone do not fully explain the rationality of stock splits. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Review of Quantitative Finance and Accounting Springer Journals

Rationality of Stock Splits: The Target-Price Habit Hypothesis

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Publisher
Kluwer Academic Publishers
Copyright
Copyright © 2000 by Kluwer Academic Publishers
Subject
Finance; Corporate Finance; Accounting/Auditing; Econometrics; Operation Research/Decision Theory
ISSN
0924-865X
eISSN
1573-7179
D.O.I.
10.1023/A:1008380124327
Publisher site
See Article on Publisher Site

Abstract

The question of why firms exercise stock splits has inspired research for some time. Signalling and optimal trading range hypotheses are possible explanations for stock splits. This paper considers the sociological aspects of maintaining a stable target-price habit. It argues that one of the principal reasons for stock splits is to conform to the market norm, which is established by mutual reinforcement among financial analysts, managers, and investors. Models based on economic reasons alone do not fully explain the rationality of stock splits.

Journal

Review of Quantitative Finance and AccountingSpringer Journals

Published: Oct 8, 2004

References

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