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The Effects Of Stock Splits On The Ownership Mix Of A Firm

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  • Gary E. Powell
  • H. Kent Baker

Abstract

This paper examines the relationship between stock splits and the ownership mix of firms. Previous studies suggest that firms issue stock splits to lower their stock price into an optimal range so small investors can more easily afford to buy round lots. The results of this paper show a positive relationship between stock splits and institutional ownership but no effect on the firm's number of shareholders. Thus, the percentage of shares owned by individual investors decreases after a stock split. The inverse relationship between institutional ownership and a firm's total assets suggests that small firms use stock splits to attract attention from Wall Street.

Suggested Citation

  • Gary E. Powell & H. Kent Baker, 1993. "The Effects Of Stock Splits On The Ownership Mix Of A Firm," Review of Financial Economics, John Wiley & Sons, vol. 3(1), pages 70-88, September.
    • Handle: RePEc:wly:revfec:v:3:y:1993:i:1:p:70-88
    DOI: 10.1002/j.1873-5924.1993.tb00573.x
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    References listed on IDEAS

    as
    1. Lakonishok, Josef & Lev, Baruch, 1987. "Stock Splits and Stock Dividends: Why, Who, and When," Journal of Finance, American Finance Association, vol. 42(4), pages 913-932, September.
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    3. Ohlson, James A. & Penman, Stephen H., 1985. "Volatility increases subsequent to stock splits: An empirical aberration," Journal of Financial Economics, Elsevier, vol. 14(2), pages 251-266, June.
    4. repec:bla:jfinan:v:43:y:1988:i:4:p:1009-13 is not listed on IDEAS
    5. Grinblatt, Mark S. & Masulis, Ronald W. & Titman, Sheridan, 1984. "The valuation effects of stock splits and stock dividends," Journal of Financial Economics, Elsevier, vol. 13(4), pages 461-490, December.
    6. Brennan, Michael J. & Copeland, Thomas E., 1988. "Stock splits, stock prices, and transaction costs," Journal of Financial Economics, Elsevier, vol. 22(1), pages 83-101, October.
    7. Lamoureux, Christopher G & Poon, Percy, 1987. "The Market Reaction to Stock Splits," Journal of Finance, American Finance Association, vol. 42(5), pages 1347-1370, December.
    8. McNichols, Maureen & Dravid, Ajay, 1990. "Stock Dividends, Stock Splits, and Signaling," Journal of Finance, American Finance Association, vol. 45(3), pages 857-879, July.
    9. repec:bla:jfinan:v:44:y:1989:i:5:p:1361-72 is not listed on IDEAS
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    Cited by:

    1. Jiaquan Chen & Marcel Ausloos, 2023. "A Study about Who Is Interested in Stock Splitting and Why: Considering Companies, Shareholders, or Managers," JRFM, MDPI, vol. 16(2), pages 1-25, January.

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