The effects of stock splits on the bid-ask spread of syndicated loans
by Bill B. Francis; Iftekhar Hasan; Mingming Zhou
International Journal of Banking, Accounting and Finance (IJBAAF), Vol. 5, No. 1/2, 2013

Abstract: Since the seminal article by Fama et al. (1969) that splits are associated with real economic effects, existing literature is still inconclusive on whether stock splits signal private information as the signalling hypothesis predicts. Our study is motivated by the conjecture that stock splits signal private information that affects both bondholders as well as equity holders, and we empirically examine the effect of stock splits on the bid-ask spread of the syndicated loans, which serves as a measure of information asymmetry (or opaqueness) of the borrowing firm. We find that bid-ask spread of the loans significantly decreases around the splits event, implying that splits signal private information to the market, and such signalling reduces the opaqueness of the firm.

Online publication date: Fri, 18-Jul-2014

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