Reverse Stock Splits: Motivations, Effectiveness and Stock Price Reactions

• Other Authors: Marchman, Barry (authoraut)
• Format: Others
• Language: English; English
• Published: Florida State University
• Subjects: Finance; Management
• Online Access: http://purl.flvc.org/fsu/fd/FSU_migr_etd-2744

Stock price reactions to reverse stock splits are examined in relation to various firm characteristics and market movements. It is found that the market reacts stronger on the ex-date than on the announcement date. The market reaction varies by industry and by reason given for the reverse stock split. Firms that split for regulatory reasons perform worse that firms that split for other reasons. In the long run, there is little evidence of a negative abnormal BHAR after a reverse stock split, but there is some evidence BHRs varying by industry. An examination of financial ratios and variables reveals that firms with better sales performance and higher operating-income-to-assets have better ex-date returns. In the long run, firms with lower debt relative to their assets do better after the reverse stock split. Operating income expressed as a percent of assets is also positively related to the 250-day BHRs. The NASDAQ minimum bid price rule change of 2001 is explored to determine if it had an impact on reverse stock splits or delistings. The evidence is mixed. The number of firms delisted, expressed as a percentage of firms that would have been delisted under the old rules, decreased. However, the percentage of reverse stock splits, expressed as a percentage of low priced firms, did not change. === A Dissertation submitted to the Department of Finance in partial fulfillment of the requirements for the degree of Doctor of Philosophy. === Summer Semester, 2007. === June 5, 2005. === Financial Distress, NASDAQ Regulations, Reverse Stock Splits, Stock Splits, Ex-date Effects === Includes bibliographical references. === Gary Benesh, Professor Directing Dissertation; Rick Morton, Outside Committee Member; Stephen Celec, Committee Member; Yingmei Cheng, Committee Member.