Global Advanced Research Journal of Management and Business Studies (GARJMBS) ISSN: 2315-5086 November 2014 Vol. 3(11), pp 522-528

Copyright © 2014 Global Advanced Research Journals   

 

Original Research Articles

Stock splits and stock dividends: implications for bid ask spread components

 Dr Wissem Daadaa

University of Carthage Tunisia

Email: Wissem.daadaa@yahoo.fr

Accepted 02 September 2014

 

Abstract

Recent theoretical researches in equity market consider that the enhanced liquidity is the principal motivation for stock splits and stock dividends, however, empirical studies find different results and even a decline in liquidity after the announcements or the effectives dates (ex dates) of theses events. In this paper, we analyze the stock splits and stock dividends effects on liquidity using bid ask spread measures.  The sample is composed of all the stock splits and stock dividends announcements on Tunisia Stock Exchange (TSE), between 1990 and 2010.  We test the change of the various indicators liquidity before the announcement period, between the announcement and the ex date, and after the ex date. The results show an increase in the absolute and relative spread after the ex date of stock splits.  This increase in the spread involves an increase in the investor transaction cost, a degradation of the short-term liquidity and the fall of the market quality.  This increase is explained by order processing costs and inventory holding costs.

Keywords: Stock, Dividends, Stock Market.  

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