Portal de Periódicos da CAPES

Stock-Split and Stock-Dividend Decisions

1973; Wiley; Volume: 2; Issue: 4 Linguagem: Inglês

10.2307/3665422

1755-053X

James A. Millar, Bruce D. Fielitz,

Financial Reporting and Valuation Research

T he effect of stock splits and stock dividends on the market price of common shares continues to be controversial. Some investigators [11, 12, 17] suggest that stock splits and stock dividends alone are important causes of changes in the behavior of stock prices. Others [1, 2, 3, 8, 9] suggest that new stock distributions only carry or imply information about other fundamental variables, such as dividends and earnings, and that price action is attributable to expected changes in them and not to the distributions per se. When a firm has a stock split, par value is reduced and the number of shares is increased proportionally; all other accounts remain unchanged. Production efficiency is not affected since the assets are unaffected, and long-term debt and its interest charge and preferred stock and its dividend are not affected. Hence, trading on the equity and financial leverage is not changed, and finally, total equity and pro rata ownership of original shareholders remain unchanged. Thus, no reason is evident for the market value of the firm to be influenced solely by a split or stock dividend. Historical evidence, however, indicates that common stocks associated with splits and stock dividends do experience price increases during the period preceding the distribution. Price action after the distribution date is somewhat less predictable with prices continuing to increase in some ca es, and declining or remaining constant in others.