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The effects of stock splits on the bid-ask spread of syndicated loans

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  • Bill B. Francis
  • Iftekhar Hasan
  • Mingming Zhou

Abstract

Since the seminal article by Fama et al. (1969) that splits are associated with real economic effects, existing literature is still inconclusive on whether stock splits signal private information as the signalling hypothesis predicts. Our study is motivated by the conjecture that stock splits signal private information that affects both bondholders as well as equity holders, and we empirically examine the effect of stock splits on the bid-ask spread of the syndicated loans, which serves as a measure of information asymmetry (or opaqueness) of the borrowing firm. We find that bid-ask spread of the loans significantly decreases around the splits event, implying that splits signal private information to the market, and such signalling reduces the opaqueness of the firm.

Suggested Citation

  • Bill B. Francis & Iftekhar Hasan & Mingming Zhou, 2013. "The effects of stock splits on the bid-ask spread of syndicated loans," International Journal of Banking, Accounting and Finance, Inderscience Enterprises Ltd, vol. 5(1/2), pages 159-187.
    • Handle: RePEc:ids:injbaf:v:5:y:2013:i:1/2:p:159-187
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