Stock splits, liquidity, and information asymmetry - An empirical study on Tokyo Stock Exchange

This paper comprehensively studies the effects of stock splits on the market characteristics of the stocks and also tries to give an explanation for the results referring to the existing hypotheses and previous empirical results. We investigate the trading activity, liquidity, information asymmetry, and the investors' behavior changes around the stock splits. We find that the stock splits tend to increase the trading activity, to enhance the market liquidity, to reduce the information asymmetry, and to lower the probability of informed trading. Several main existing explanations-signaling hypothesis, trading range hypothesis, and tick size hypothesis-are largely supported by our empirical findings. J. Japanese Int. Economies 22 (3) (2008) 417-438. Department of Marketing Operation, Top Glory International Holdings Limited, Top Glory Tower, 262 Gloucester Road, Causeway Bay, Hong Kong, China; Department of Finance, Lingnan College, Sun Yatsen University, Guangzhou 510275, China; Research Institute, Shenzhen Stock Exchange, Futian District, Hongli (west) Road, Shangbu Industrial Zone, Bldg. 10, Shenzhen 518028, China. (C) 2008 Elsevier Inc. All rights reserved.