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Abstract Recent studies document abnormal stock returns at stock split announcements. Three hypotheses related to expected future earnings—the trading range, attention, and signaling hypotheses—have been offered as explanations. Evidence has also been provided that splitting firms have greater postannouncement earnings growth than control nonsplitting firms. Using earnings expectation data from the Institutional Brokers Estimate System, significantly greater forecast revisions are found in this study for split firms than for control nonsplit firms. The difference is significantly related to abnormal stock returns of splitting firms.
Klein et al. (Fri,) studied this question.