A study on the effects of stock split on the stock price and performance of publicly listed companies in Malaysia, Philippines and Singapore (2004-2010)

• Main Authors: Friginal, Juan Paolo A., Salvador, Donna Anne L., Tan, Hideo Hardaway A.
• Format: text
• Language: English
• Published: Animo Repository 2015
• Subjects: Finance and Financial Management
• Online Access: https://animorepository.dlsu.edu.ph/etd_bachelors/18064
• Institution: De La Salle University

Stock splits are generally seen as an intriguing corporate event due to its significant impact despite its simplicity. There are a number of theories that explain why companies undergo stock split such as the signaling, optimal trading range and optimal tick size hypotheses. This study uncovers the effects of stock split to the stock price and performance of companies in Malaysia, Singapore and Philippines and verifies the validity of the aforementioned theories in these Southeast Asian countries. A total of 63 companies that have undergone stock split in the three countries from the period 2004-2010 were studied and compared data for the same year to corresponding non-splitting companies in the same industries. The researchers used the capital gains yield ratio, price to earnings ratio, and the main empirical test, t-test, to analyze the ratios obtained in the before and after split comparisons of different companies as well as the stock split and non-stock slit company comparisons, during the three (3) year span. Findings revealed that the capital gains yield, which measures the overall profits to be earned from the purchase and eventual sale of the stock, showed that stock splits produced lower yields as compared to their performance before the split. On the other hand, the P/E ratio shows the value given by investors to a specific company's stock had increased after a stock split and based from the t-test, it was seen that split companies outperformed non-split companies significantly in terms of the capital gains their stocks have produced. Given this the researchers have concluded that as a whole, Malaysian and the Philippine companies who have undergone a stock split generated a higher yield as compared to those which have not undergone a stock split, while Singaporean companies who performed a stock split did significantly worse. While in terms of P/E Ratios all companies who have executed a stock split performed significantly better than those which have not. Although the main objective of this study was achieved through the results, the researchers recommend to take into account other various indicators of the company's performance, such as the other financial ratios, for further accurate study of this topic.