Chapter 6 Common Stocks Reverse stock split is a form of stock split whereby the number of shares is reduced and the par value per share is increased
Chapter 6 Common Stocks ⚫ Reverse stock split is a form of stock split whereby the number of shares is reduced and the par value per share is increased
Chapter 6 Common Stocks o EX-distribution dates Similar to the payment of cash dividends, the corporation specifies three dates associated with either stock dividends or stock splits: a declaration date, a date of record and a payment date However there is now an ex distribution date instead of an ex-dividend date. That refers to the date on which ownership of stock is determined for purposes of paying stock dividends or issuing new shares due to stock splits. Owners purchasing shares before the ex-distribution date receive the new shares in question
Chapter 6 Common Stocks ⚫ Ex—distribution dates Similar to the payment of cash dividends, the corporation specifies three dates associated with either stock dividends or stock splits: a declaration date, a date of record and a payment date. However, there is now an ex—distribution date instead of an ex—dividend date. That refers to the date on which ownership of stock is determined for purposes of paying stock dividends or issuing new shares due to stock splits. Owners purchasing shares before the ex—distribution date receive the new shares in question
Chapter 6 Common Stocks Owners purchasing shares on or after ex- distribution date are not entitled to the new shares o Reasons for stock dividends and splits e Nothing of importance would appear to be changed, as such actions do not increase revenues or reduce expenses. All that happens is that there is a change in the size of the units in which ownership may be bought and sold Moreover, because the process involves administrative effort, and costs something to execute, one wonders why it is done
Chapter 6 Common Stocks Owners purchasing shares on or after ex— distribution date are not entitled to the new shares. ⚫ Reasons for stock dividends and splits ⚫ Nothing of importance would appear to be changed, as such actions do not increase revenues or reduce expenses. All that happens is that there is a change in the size of the units in which ownership may be bought and sold. Moreover, because the process involves administrative effort, and costs something to execute, one wonders why it is done
Chapter 6 Common Stocks o It is sometimes argued that stockholders respond positively to tangible""evidence of the growth of their corporation o Another view holds that splits and stock dividends by decreasing the price per share, may bring the stock's price into a more desirable trading range and hence increase the total value of the amount outstanding. ● For each split, the stock's“ abnormals return was determined by relating monthly returns on the stock to the corresponding returns in the stock market This abnormal returns were averaged across firms
Chapter 6 Common Stocks ⚫ It is sometimes argued that stockholders respond positively to “tangible” evidence of the growth of their corporation. ⚫ Another view holds that splits and stock dividends, by decreasing the price per share, may bring the stock’s price into a more desirable trading range and hence increase the total value of the amount outstanding. ⚫ For each split, the stock’s “abnormal” return was determined by relating monthly returns on the stock to the corresponding returns in the stock market. ⚫ This abnormal returns were averaged across firms
Chapter 6 Common Stocks for each month relative to the firms split and then cumulated across time The evidence also suggests that rather than decreasing transaction costs, stock splits actually increased them A study of presplit and postsplit behavior showed that after splits, trading volume rose less than proportionately, and both commission costs and bid ask spreads, expressed as a percentage of value, increased hardly reactions that are favorable to stockholders Another study of stock splits and stock dividends uncovered an apparent market efficiency
Chapter 6 Common Stocks for each month relative to the firm’s split and then cumulated across time. The evidence also suggests that rather than decreasing transaction costs, stock splits actually increased them. A study of presplit and postsplit behavior showed that after splits, trading volume rose less than proportionately, and both commission costs and bid— ask spreads, expressed as a percentage of value, increased hardly reactions that are favorable to stockholders. Another study of stock splits and stock dividends uncovered an apparent market efficiency