Corporate actions and the manipulation of retail investors in China: An analysis of stock splits

• Main Authors: TITMAN, Sheridan, WEI, Chi Shen, ZHAO, Bin
• Format: text
• Language: English
• Published: Institutional Knowledge at Singapore Management University 2022
• Subjects: Stock market manipulation; stock splits; China; Finance and Financial Management
• Online Access: https://ink.library.smu.edu.sg/lkcsb_research/7076; https://ink.library.smu.edu.sg/context/lkcsb_research/article/8075/viewcontent/Titman_Wei_Zhao_2021_Final_version.pdf
• Institution: Singapore Management University

We identify a group of “suspicious” firms that use stock splits, perhaps along with other activities, to artificially inflate their share prices. Following the initiation of suspicious splits, share prices temporarily increase, and subsequently decline below their presplit levels. Using account level data from the Shanghai Stock Exchange, we find that small retail investors acquire shares in firms initiating suspicious splits, while more sophisticated investors accumulate positions before suspicious split announcements and sell in the postsplit period. We also find that insiders sell large blocks of shares and obtain loans using company stock as collateral around the initiation of suspicious splits.