The Short-term Performance of Stock Split
Authors:   Asia-Europe Perspective Association, Chang Yun-Cheol , Shin Yeon-Soo 
Published: June 2018

The opinion about stock split was clearly divided into two sides. Stock split is irrelevant to performance and cash flow in the market and it is nothing but increase the number of shares, so it could increase trading cost which adversely affect corporate performance. Meanwhile stock split could be recognized positive signal of managers and it could be expected to increase of dividend due to increased shares which affirmatively affect corporate performance. This study regard it as meaningful only to measure short-term performance and to suggest the effectiveness of stock split. This study measure of short-term performance after the date of split disclosure and execution about KOSPI 120 companies and KOSDAQ 186 companies.
Short-term performance of stock split was analyzed by measuring of cumulative abnormal returns(CAR) by using the method of market model and Scholes-Williams model, GARCH, EGRACH model.
The purpose of this study analyzed that the disclosure and execution of stock split have an effect on short-term performance in the Korean securities market. Managers want to trade to lower prices through a stock split, so that this could be predicted that individual investors rather than institutional investors can be induced into the market to increase information asymmetry in the market than ever before. Therefore, increase of these information asymmetries will increase the trading cost to reduce liquidity consequently. There exist several theories about disclosure effects of the stock split.
First, the company's internal information is provided to the market through a stock split(Signalling Hypothesis). Grinblatt, Masulis, Titman (1984), Lamoueux, Poon (1987), Brennan, Copeland (1988). Second, the lower of the trading price of the shares is to attract new investors in the securities market through a stock split(Trading Range Hypothesis), Copeland (1979), McNichols, Dravid (1990). Third, changing the tick size of each investor through a stock split is to minimize transaction costs(Minimum fluctuation hypothesis), Angel (1997). Fourth, institutional investors through a stock split is to produce better information(Information production hypothesis) Brennan, Hughes (1991).
The result of an empirical analysis on the short-term performance of the stock split shows as follows.
First, short-term performance of the KOSPI market after the stock split showed positive performance at market model and the market model + SW, Market Model + GARCH model, and the market model + EGARCH model. However, the performance showed the decrease in the market-adjusted model of execution day. Namely, the cumulative abnormal return at the period of window (0, +30) showed 20.25% in the market model , 20.08% in the market model+SW model, 11.61% in the market Model+GARCH model, 12.95% in the market model+EGARCH model. The market adjusted model between Disclosure day and execution day appeared very different result in comparison with existing analysis. The cumulative abnormal return of market-adjusted model of disclosure day showed 2.32% at the period of window (0, +10), while -16.05% at the period of window(0, +30). The cumulative abnormal return of market-adjusted model of execution day almost showed statistically significant negative return at the period of window (0, +30). Therefore, the short-term performance of the stock split was not shown.
Second, short-term performance of the KOSDAQ market after the stock split also showed positive performance at market model and the market model + SW, Market Model + GARCH model, and the market model + EGARCH model. However, the performance was decreased in the market-adjusted model of execution day. Namely, the cumulative abnormal return at the period of window (0, +30) showed 0.18% in the market model, 0.19% in the market model+SW model, 0.20% in the market Model+GARCH model, 0.21% in the market model+EGARCH model.