Analysis of Effects of Large Stock Splits on Stock Prices

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After 2000, as Japanese stock market was deregulated, many listed firms split their stocks in large scale(with split ratios of 2 or higher). This research confirms that the stock prices systematically rose and fell during the period between the ex- and pay-dates of splits, based on data that are more comprehensive than the data Greenwood(forthcoming in Review of Financial Studies) used to analyze the same phenomenon. The rise and fall in stock price during this special period can be viewed as a mini-bubble and its subsequent collapse. This study also confirms that this phenomenon is consistent with the resale option as discussed in Hong, Scheinkman, and Xiong(2006, Journal of Finance, HSX hereafter).Furthermore, this study has uncovered the following. (1) The larger the split ratio is and the more diverse the investors' opinion about the stock split is, the greater the bubble is. (2) The larger the split ratio is and the more diverse the investors' opinion about the stock split is, the greater the crash following the bubble is. (3) The data is consistent with the multiplier effects HSX pointed out. (4) The turnover and volatility of the stock tends to decrease at the time of crash following the bubble.