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Social learning and corporate peer effects

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  • Kaustia, Markku
  • Rantala, Ville

Abstract

We find that firms are more likely to split their stock if their peer firms have recently done so. The effect is comparable to an increase of 40–50% in the share price. Splitting probability is also increasing in the announcement returns of peer splits. These results are consistent with social learning from peers’ actions and outcomes. The unique features of the setting and various further tests render alternative explanations unlikely. We find no clear benefit in following successful peer splitters. Firms are sometimes suspected to succumb to imitation, and the effect we show could be a case in point.

Suggested Citation

  • Kaustia, Markku & Rantala, Ville, 2015. "Social learning and corporate peer effects," Journal of Financial Economics, Elsevier, vol. 117(3), pages 653-669.
    • Handle: RePEc:eee:jfinec:v:117:y:2015:i:3:p:653-669
    DOI: 10.1016/j.jfineco.2015.06.006
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    More about this item

    Keywords

    Peer effect; Stock splits; Social learning;
    All these keywords.

    JEL classification:

    • G19 - Financial Economics - - General Financial Markets - - - Other
    • G39 - Financial Economics - - Corporate Finance and Governance - - - Other

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