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Reverse splits in international stock markets: Reconciling the evidence on long-term returns

Author

Listed:
  • Zaremba, Adam
  • Okoń, Szymon
  • Asyngier, Roman
  • Schroeter, Lucia

Abstract

Do firms conducting reverse splits underperform or overperform in the long run? To resolve this question we investigate the long-term returns following more than 5000 reverse splits conducted in 24 developed equity markets between the years 1990 and 2016. Using the calendar-time portfolio approach, we demonstrate that reverse splits lead to subsequent underperformance, except for microcaps in the sample. This phenomenon is present in all the global regions we examined—North America, Europe, and Asia-Pacific—and is robust to many considerations.

Suggested Citation

  • Zaremba, Adam & Okoń, Szymon & Asyngier, Roman & Schroeter, Lucia, 2019. "Reverse splits in international stock markets: Reconciling the evidence on long-term returns," Research in International Business and Finance, Elsevier, vol. 47(C), pages 552-562.
    • Handle: RePEc:eee:riibaf:v:47:y:2019:i:c:p:552-562
    DOI: 10.1016/j.ribaf.2018.10.001
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    More about this item

    Keywords

    Reverse split; Share consolidation; Long-Run returns; International markets; Long-Term event study; Penny stocks; Micro-Caps;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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