The valuation effects of stock splits in NASDAQ

Purpose - To investigate whether a stock split is still considered a policy that creates value for the underlying company and the rationale behind such action for companies listed on the NASDAQ. Design/methodology/approach - The event study methodology of Strong is employed to examine the announcement effect of stock splits on stock prices. Findings - The results indicate a positive market reaction at the stock split announcement and that the liquidity hypothesis explains well the rationale for the stock splits. Research limitations/implications - The sample is quite small (57 observations) and the examination period is limited to 1999 and 2000. Practical implications - Findings are of particular interest to researchers, practitioners and investors that have an interest in firms listed on NASDAQ. Originality/value - Limited research on the stock price behaviour of firms listed on NASDAQ around stock split announcement date.