Determinants Of High Stock "Splits"Announcements In Chinese Stock Market

The study examines the timing patterns of “high stock split” announcements inChinese stock market. The study first tests market driven hypothesis using A-sharestocks from1999to2012as samples. The empirical results from probit regressionindicate that market conditions do not have a significant relationship with firm’slikelihood to issue “high stock splits”, which implies that the main motive for firms toannounce “high stock splits” in China is not to pursue higher post announcementabnormal return in better market conditions. The study then tests event driven ormanipulation hypothesis on the samples. The evidences show that “high stock split”announcements are close in time with the release of non-tradable shares from IPOs andprivate placements. In addition, the more the proportion of stocks being released, themore it is likely for firms to issue “high stock splits”. The results imply that managersuse “high stock splits” as manipulation tools to raise short-term stock prices around therelease dates to benefit non-tradable shareholders. The study then uses earning quality asa proxy for firms’ intention to manipulate, and finds that the poorer the earning quality,the more it is likely that firms issue “high stock splits”. In addition, it is found that theaverage long-run performances for splitting releasing stocks are less than that ofnon-splitting releasing stocks. The evidences support the event-driven or manipulationhypothesis. The research sheds light on the timing patterns of “high stock splits” inChinese stock market, and gives suggestions to small shareholders and regulators onmanagers’ manipulative behavior related to this event.