1 The Effects of Stock Splits on Pricing and Bid-Ask Spread of Syndicated Loans

Stock splits have long challenged the standard textbook analysis (e.g., Brealey and Myers (1991, p. 302-303) that regards splits as a purely cosmetic change, as it is well documented since the seminal article by Fama et al. (1969) that splits are associated with real economic effects. However, existing studies are still inconclusive on whether stock splits signal private information as the signaling hypothesis predicts. Studies that test signaling hypothesis based on equity-based data may have contaminated results because the changes in the share price mandated by splits may cloud the signaling effects. In addition, there are no existing studies that document the effect of stock splits on the debt of the firm. Our study is motivated by the conjecture that stock splits signal private information that is firm-wide rather than equity-wide. Based on this conjecture, we attempt to achieve a cleaner test of signaling hypothesis by utilizing the loan pricing data. More specifically, 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. In addition, we empirically explore whether the private information signaled by splits (if there is any) ha