Corporate Actions and the Manipulation of Retail Investors in China: An Analysis of Stock Splits

We identify a group of “suspicious” firms that use stock splits—perhaps, along with other activities—to artificially inflate their share prices. Following the initiation of suspicious splits, share prices temporarily increase, and subsequently decline below their pre-split levels. Using account level data from the Shanghai Stock Exchange, we find that small retail investors acquire shares in firms initiating suspicious splits, while more sophisticated investors accumulate positions before suspicious split announcements and sell in the post-split period. We also find that insiders sell large blocks of shares and obtain loans using company stock as collateral around the initiation of suspicious splits.