Impact of stock split on price and liquidity: empirical evidence from Indian Stock Market

Stock splits are aesthetic events that simply divide pie into difference slices and do not impact the underlying cash flows and market capitalization of the firm. There are several motives of stock splits like increasing liquidity, to achieve optimum tick size, management confidence in future stock price etc. The objective of the study is to analyze impact of stock splits on price and liquidity of the share in the Indian Stock Market. To do so, event window of 61 days, consisting 30 days before and 30 days after the stock split considered of 20 companies in the year 2011 whose stock split ratio is 10:1. The returns in the period prior to the announcement compared with the returns after execution of the split in terms of mean returns and variance of returns. The empirical evidence suggests that there is clear evidence about changes in the liquidity after the split. The Wilcoxon Pair test was used to test the significance of the stock returns.