The “Magic Action” of Stock Splits: Evidence from the Warsaw Stock Exchange 2003–2017
The “Magic Action” of Stock Splits: Evidence from the Warsaw Stock Exchange 2003–2017

Summary/Abstract: Purpose: Many researchers claim that split has a positive effect on stock returns. However, if weobserve more closely, we notice that this is only an accounting procedure. Therefore, the questionarises as to whether stock prices should change. To answer this problem, we checked the marketreaction to the division of shares on the Warsaw Stock Exchange.Methodology: To verify our hypotheses, we used the event study analysis. Based on the Sharpe market model, we assumed that the price of the asset determines systematic risk and specific risk.Findings: On the basis of conducted analyses, we found a positive market reaction to the first splitinformation, while the announcement of General Meeting of Shareholders (GMS) resolutions generated a price correction. Moreover, split events initially caused an increase in abnormal returns.The research results are consistent with the efficient market hypothesis.Research limitations: The sample size does not give an opportunity to check the impact of economiccycles. During the last 15 years, we found only 75 events of splits without any disruption event.Originality: Analysis of three dates: information about the planned general meeting of shareholdersregarding the split, publication of decisions taken at the general meeting, and the day of the split

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