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The valuation effect of stock dividends or splits: Evidence from a catering perspective

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  • Hu, Conghui
  • Liu, Yu-Jane
  • Xu, Xin

Abstract

We hypothesize that managers use stock dividends or splits to cater to gambling investors who are willing to pay a premium for stocks with lottery-like features. Using proprietary account-level trading records, we find that retail investors, particularly those with a strong gambling preference, become strong net buyers following the announcement of stock dividends, while professional investors unload their holdings. Moreover, we find that positive market reactions to stock dividends is positively associated with increases in gambling investors.

Suggested Citation

  • Hu, Conghui & Liu, Yu-Jane & Xu, Xin, 2021. "The valuation effect of stock dividends or splits: Evidence from a catering perspective," Journal of Empirical Finance, Elsevier, vol. 61(C), pages 163-179.
    • Handle: RePEc:eee:empfin:v:61:y:2021:i:c:p:163-179
    DOI: 10.1016/j.jempfin.2021.01.006
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    1. Chao, Ching-Hsiang & Huang, Chih-Jen & Ho, Ruey-Jenn & Huang, Hsin-Yi, 2022. "Catering to investors through capital expenditures: Testing assets substitution problem around financing," The North American Journal of Economics and Finance, Elsevier, vol. 59(C).
    2. Zhao, Xiaojuan & Wang, Ye & Liu, Weiyi, 2024. "Someone like you: Lottery-like preference and the cross-section of expected returns in the cryptocurrency market," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 91(C).

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    More about this item

    Keywords

    Stock dividends or splits; Catering; Gambling preferences; Clientele effect;
    All these keywords.

    JEL classification:

    • G35 - Financial Economics - - Corporate Finance and Governance - - - Payout Policy
    • G39 - Financial Economics - - Corporate Finance and Governance - - - Other
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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