Journal of Finance and Accountancy The effect of stock split, Page 1 The effect of stock split announcements on abnormal returns during a financial crisis

Previous studies have documented positive abnormal returns around stock split announcement and have offered several explanations on the basis of liquidity related theory and information related theory. In this study, the authors analyze cumulative average abnormal returns (CAAR) and market adjusted CAAR around stock split announcement during pre-financial crisis (2004-2007) and financial crisis periods (2008-2011). Specifically, the authors investigate the effect of stock split announcements on abnormal returns in the wake of bearish market sentiment during the financial crisis. The authors find that market reaction is positive to a stock split announcement even during the financial crisis period (2008-2011) evidenced by positive market adjusted cumulative average abnormal returns. However, positive abnormal returns during the financial crisis diminish within a shorter window (3 days and 5 days) as compared to pre-crisis period when abnormal returns were observed over a longer period