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Catering Through Nominal Share Prices Revisited

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  • Perez, M. Fabricio
  • Shkilko, Andriy

Abstract

Finance research suggests that firms cater to investors’ time-varying preference for low-priced stocks by managing nominal share prices. We show that the existing empirical tests of such catering use highly persistent data that may lead to finding significant relations between variables that are actually independent (spurious regression bias). We revisit the catering hypothesis applying five estimation techniques that reduce the effects of data persistence. Adjusted for persistence, the data offer little evidence that stock splits respond to catering incentives. There is some, although mixed, evidence that catering incentives affect the firms’ choice of the post-split prices and the IPO prices.

Suggested Citation

  • Perez, M. Fabricio & Shkilko, Andriy, 2017. "Catering Through Nominal Share Prices Revisited," Critical Finance Review, now publishers, vol. 7(1), pages 43-75, March.
    • Handle: RePEc:now:jnlcfr:104.00000042
    DOI: 10.1561/104.00000042
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    Cited by:

    1. Métais, Carole & Roger, Tristan, 2022. "Are retail investors less aggressive on small price stocks?," Journal of Financial Markets, Elsevier, vol. 59(PA).

    More about this item

    Keywords

    Stock splits; Nominal share price; Catering;
    All these keywords.

    JEL classification:

    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • G39 - Financial Economics - - Corporate Finance and Governance - - - Other

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