TY - JOUR
T1 - Institutional Investors and the Information Production Theory of Stock Splits
AU - Chemmanur, Thomas J.
AU - Hu, Gang
AU - Huang, Jiekun
N1 - Funding Information:
For helpful comments and discussions, we thank seminar participants at Babson College, Bentley University, Boston College, City University of Hong Kong, Indiana University, National University of Singapore, Purdue University, Shanghai Advanced Institute of Finance, Shanghai University of Finance and Economics, University of Alberta, University of Connecticut, University of Hong Kong, University of Illinois at Urbana-Champaign, University of Massachusetts Amherst, University of Memphis, University of Notre Dame, University of Vermont, Xiamen University, 2008 Financial Management Association meeting, 2008 AsianFA-NFA International Conference, 2009 Mid-Atlantic Research Conference in Finance, 2010 Boston Area Finance Symposium, and 2012 China International Conference in Finance. We give special thanks to Paul Malatesta (the editor) and an anonymous referee for several helpful comments that greatly improved the paper. We thank Abel Noser Solutions, Ltd. for providing us with their institutional trading data. Chemmanur acknowledges support from a Boston College summer research grant. Hu acknowledges financial support from the National Natural Science Foundation of China (NSFC No. 71073132 and No. 71471130) and the Fundamental Research Funds for the Central Universities in China (No. 2011221018). We are solely responsible for all remaining errors and omissions. 04 08 2015 06 2015 50 3 413 445 Copyright © Michael G. Foster School of Business, University of Washington 2015 2015 Michael G. Foster School of Business, University of Washington
Publisher Copyright:
Copyright © Michael G. Foster School of Business, University of Washington 2015.
PY - 2015/7/16
Y1 - 2015/7/16
N2 - We make use of a large sample of transaction-level institutional trading data to test an extended version of Brennan and Hughes' (1991) information production theory of stock splits. We compare brokerage commissions paid by institutional investors before and after a split, assess the private information held by them, and relate the informativeness of their trading to brokerage commissions paid. We show that institutions make abnormal profits net of brokerage commissions by trading in splitting stocks. We also show that the information asymmetry faced by firms goes down after stock splits. Overall, our empirical results support the information production theory.
AB - We make use of a large sample of transaction-level institutional trading data to test an extended version of Brennan and Hughes' (1991) information production theory of stock splits. We compare brokerage commissions paid by institutional investors before and after a split, assess the private information held by them, and relate the informativeness of their trading to brokerage commissions paid. We show that institutions make abnormal profits net of brokerage commissions by trading in splitting stocks. We also show that the information asymmetry faced by firms goes down after stock splits. Overall, our empirical results support the information production theory.
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U2 - 10.1017/S0022109015000162
DO - 10.1017/S0022109015000162
M3 - Article
AN - SCOPUS:84939254667
SN - 0022-1090
VL - 50
SP - 413
EP - 445
JO - Journal of Financial and Quantitative Analysis
JF - Journal of Financial and Quantitative Analysis
IS - 3
ER -