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Stock Solit And Profitability: A Study At Jakarta Stock Exchange

Stock Solit And Profitability: A Study At Jakarta Stock Exchange
Nury Effendi, Dewi Puspitasari
Universitas Padjadjaran, Paper presented at Simposium Kebudayaan Indonesia-Malaysia X, Kuala Lumpur, 28-31 May, 2007
Inggris
Universitas Padjadjaran, Paper presented at Simposium Kebudayaan Indonesia-Malaysia X, Kuala Lumpur, 28-31 May, 2007
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The general believe about Stock Split is that it will not change the firm value. Nevertheless, many firms at Jakarta Stock Exchange (JSX) have split their stocks. This study tries to investigate whether stock split decision is influenced more significantly by perceived market information. Theoretically, it analyses whether stock split motivation can be described by Trading Range Hypothesis or Signaling Theory. Econometric method, in the form of panel data analysis, and event study are used as the analytical tool. Exploring the stock split data at JSX covering the period of 1999 – 2001, the study shows that Signaling Theory is more suitable in explaining stock split decision. This is because the non-perceived component of inforination is more prevalent. The study also finds that split factor is not significantly correlated with the first three years of profit after the firms decide to split their stocks. This implies that stock split is only significantly related to the short-term returns and less significantly with the long-term returns.

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