1REIT Stock Splits and Liquidity Changes

This study examines whether liquidity improves following REIT stock splits. We find that REIT liquidity does increase after the announcement of splits. However, the increase in REIT liquidity is limited in the five-day interval that surrounds the split announcement date. Indeed, after the ex-date, the liquidity reverts to the level before the split. Our results do not support the view that REIT splits are made to improve liquidity. Consistent with this result, we also find that changes in liquidity cannot explain the announcement period abnormal return. Stock splits appear to be an interesting corporate event to analyze. While stock splits do not affect a firm’s cash flows, the market tends to react to them positively. The literature suggests that one main motive for splitting stocks is to realign share prices to an “optimal ” trading range (see Lakonishok and Lev (1987)). Realigning share price may draw more attention to a stock (Grinblatt, Masulis, an