Skip to main content Accessibility help

The Effects of Reverse Splits on the Liquidity of the Stock

  • Ki C. Han (a1)


This study investigates the liquidity effects of reverse stock splits using bid-ask spread, trading volume, and the number of nontrading days as proxies for the liquidity of the stock. Results indicate a decrease in bid-ask spread and an increase in trading volume after reverse splits. More importantly, the number of nontrading days significantly declines following reverse splits. For the control group, however, no such changes are observed. These results suggest that reverse splits enhance the liquidity of the stock.



Hide All
Amihud, Y., and Mendelson, H.. “Liquidity and Asset Prices: Financial Management Implications.” Financial Management, 17 (Spring 1988), 515.
Atchison, M. D.; Butler, K. C.; and Simonds, R. R.. “Nonsynchronous Security Trading and Market Index Autocorrelation.” Journal of Finance, 42 (03 1987), 111118.
Bhardwaj, R. K., and Brooks, L. D.. “The January Anomaly: Effects of Low Share Price, Transaction Costs, and Bid-Ask Bias.” Journal of Finance, 47 (06 1992), 553575.
Brennan, M. J., and Copeland, T. E.. “Stock Splits, Stock Prices, and Transaction Costs.” Journal of Financial Economics, 22 (10 1988), 83101.
Conover, W. J.Practical Nonparametric Statistics. New York, NY: John Wiley & Sons (1980).
Conroy, R. M.; Harris, R. S.; and Benet, B. A.. “The Effects of Stock Splits on Bid-Ask Spreads.” Journal of Finance, 45 (09 1990), 12851295.
Copeland, T. E.Liquidity Changes following Stock Splits.” Journal of Finance, 34 (03 1979), 115141.
Demsetz, H.The Cost of Transacting.” Quarterly Journal of Economics, 83 (02 1968), 3553.
Eades, K. M.; Hess, P. J.; and Kim, E. H.. “On Interpreting Security Returns during the Ex-dividend Period.” Journal of Financial Economics, 13 (03 1984), 334.
Edmister, R. O., and Subramanian, N.. “Determinants of Brokerage Commission Rates for Institutional Investors: A Note.” Journal of Finance, 37 (09 1982), 10871094.
Fowler, D. J., and Rorke, C. H.. “Risk Measurement when Shares are Subject to Infrequent Trading: Comment.” Journal of Financial Economics, 12 (08 1983), 279283.
Grinblatt, M. S.; Masulis, R. W.; and Titman, S.. “The Valuation Effects of Stock Splits and Stock Dividends.” Journal of Financial Economics, 13 (12 1984), 461490.
Hawawini, G. A.The Intertemporal Cross Price Behavior of Common Stocks: Evidence and Implications.” Journal of Financial Research, 3 (Fall 1980), 153167.
Lakonishok, J., and Lev, B.. “Stock Splits and Stock Dividends: Why, Who, and When.” Journal of Finance, 42 (09 1987), 913932.
Lakonishok, J.; Shleifer, A.; and Vishny, R. W.. “The Structure and Performance of the Money Management Industry.” Brookings Papers on Economic Activity: Microeconomics (1992), 339391.
Lakonishok, J., and Smidt, S.. “Volume and Turn-of-the-Year Behavior.” Journal of Financial Economics, 13 (09 1984), 435456.
Lamoureux, C. G., and Poon, P.. “The Market Reaction to Stock Splits.” Journal of Finance, 42 (12 1987), 13471370.
Ofer, A. R., and Melnick, A.. “Price Deregulation in the Brokerage Industry: An Empirical Analysis.” Bell Journal of Economics, 9 (Autumn 1978), 633641.
Peterson, D. R., and Peterson, P. P.. “A Further Understanding of Stock Distributions: The Case of Reverse Stock Splits.” Journal of Financial Research, 15 (Fall 1992), 189205.
Radcliffe, R. C., and Gillespie, W.. “The Price Impact of Reverse Splits.” Financial Analysts Journal, 35 (01/02 1979), 6367.
Scholes, M., and Williams, J.. “Estimating Betas from Nonsynchronous Data.” Journal of Financial Economics, 5 (12 1977), 309327.
Spudeck, R. E., and Moyer, R. C.. “Reverse Splits and Shareholder Wealth: The Impact of Commissions.” Financial Management, 14 (Winter 1985), 5256.
Van Home, J. C.Financial Management and Policy. Englewood Cliffs, NJ: Prentice Hall (1992).
West, R. R., and Brouilette, A. B.. “Reverse Stock Splits … Harbinger of Bad Times or Valid Management Technique.” Financial Executive, 38 (01 1970), 1217.
Woolridge, J. R., and Chambers, D. R.. “Reverse Splits and Shareholder Wealth.” Financial Management, 12 (Autumn 1983), 515.


Full text views

Total number of HTML views: 0
Total number of PDF views: 0 *
Loading metrics...

Abstract views

Total abstract views: 0 *
Loading metrics...

* Views captured on Cambridge Core between <date>. This data will be updated every 24 hours.

Usage data cannot currently be displayed