Stock splits and information: The role of share price

Our empirical investigation of announced split factors, split announcement returns, and revisions of analysts' earnings forecasts shows that a firm's past history of stock splits plays a crucial role in both the design and effect of current splits. Managers appear to design splits to return their company's stock price to the price level achieved after the last split. Moreover, when managers announce a split factor to achieve an even lower price than in the last split, both investors and analysts interpret this as a signal of especially positive information.