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Corporate Financing Decisions and Efficient Capital Markets - page 20 / 28

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Abnormal Returns for Companies Announcing Stock Splits

Cumulative abnormal returns (percent)

+33Total sample

(940 splits, 1926 - 1965)

  0

Splits followed by

+33increase in dividend

(672 stocks)

  0

+33

Splits followed by

decrease in dividend

(268 stocks)

  0 Months relative to split

-30 0 +30

Cumulative abnormal returns rise prior to month of split.  Very likely this occurs because splits take place in good times, that is, they take place following a rise in stock price.  Abnormal returns are flat after month of split, a finding consistent with efficient capital markets.

Redrawn from E. F. Fama, L. Fisher, M. C. Jensen and R. Roll, “The Adjustment of Stock Prices to New Information,” International Economic Review 10 (February 1969), pp. 1-31.

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