A Study on Stock Split Announcements and Its Impact on Stock Prices in Colombo Stock Exchange (CSE) of Sri Lanka

A Study on Stock Split Announcements and Its Impact on Stock Prices in Colombo Stock Exchange (CSE) of Sri Lanka

Skanthavarathar Ramesh

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Liu Hua

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Huazhong University of Science and Technology

A Study on Stock Split Announcements and Its Impact on Stock Prices in Colombo Stock Exchange (CSE) of Sri Lanka

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Abstract

In Sri Lanka, there is not much evidence linked to stock split announcements and stock prices behavior available to investors. This study, scrutinizes the stock price response to stock split declaration and a test of market efficiency in Colombo Stock exchange (CSE) by using a sample of 64 events (52 companies) from 14 different sectors of the emerging market during the period 2009 to 2012. Standard event study methodology is employed to find the results. The empirical results show that average abnormal return (1.46%) is statistically significant at 5% level on the stock split announcement day. This study finds that stock splits have a significant signal and information content in the Colombo Stock Exchange (CSE). On average, market positively reacts significantly to the announcement. Further, the large negative cumulative average abnormal return (-6%) is observed during the period of (0, 10). This results support the semistrong form efficient market hypothesis for the sample companies within the study period since stock prices adjust so fast to public information that investor can not earn an abnormal return by trading in the stocks following the stock split announcement day.

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Funding

No external funding was declared for this work.

Conflict of Interest

The authors declare no conflict of interest.

Ethical Approval

No ethics committee approval was required for this article type.

Data Availability

Not applicable for this article.

How to Cite This Article

Skanthavarathar Ramesh. 2013. \u201cA Study on Stock Split Announcements and Its Impact on Stock Prices in Colombo Stock Exchange (CSE) of Sri Lanka\u201d. Global Journal of Management and Business Research - C: Finance GJMBR-C Volume 13 (GJMBR Volume 13 Issue C6).

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Journal Specifications

Crossref Journal DOI 10.17406/GJMBR

Print ISSN 0975-5853

e-ISSN 2249-4588

Keywords

average abnormal returns cumulative average abnormal returns event study market efficiency and stock split

Submission ReceivedDecember 10, 2012
Peer Review Double Blind
Handling Editor
Accepted December 31, 2012
Published January 15, 2013

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v1.2

Issue date

June 28, 2013

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Article Matrices

Total Score: 132

Country: China

Subject: Global Journal of Management and Business Research - C: Finance

Authors: Liu Hua, Skanthavarathar Ramesh (PhD/Dr. count: 0)

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