Essay on Event Study of Stock Splits

Words: 924
Pages: 4

Final Project Report of
Investment Banking & Financial Services (IBFS)
February 2016
Submitted to:
Prof. A.K. Mishra
Submitted by:
Group 3, Section A DHEERAJ MADAAN(Mob- +91 7523849812) | PGP30193 | HARI SINGH CHOUDHARY | PGP30198 | RITIN KAKKAR | PGP30390 | ROHAN SARAF | PGP30219 | SAKSHI SONI | PGP30392 | | |

Indian Institute of Management, Lucknow

Contents Data 3 Sample 3 Methodology 4 Alpha and Beta Estimation 4 Event Study 4 Hypothesis & Objective 5 Testing & Results 5 Alpha and Beta calculation 5 Event Study 6 Stock Split 7 Reverse Stock Split 8 Conclusion 8

Data 1. This study includes samples of 19 companies that made a stock split
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Reverse Stock Splits
H0: The announcement of a reverse stock split does not cause any negative returns.
Testing & Results
In this section we look at sample results:
Alpha and Beta calculation
The below snippet shows a sample Alpha and beta calculation for Indag Rubber (used in Stock Split testing)

Event Study
For the event study, excess return was calculated for each firm during the following days: -60, -40, -20, (-10, +10), +20, +40 and +60. The below snippet shows the calculation for stock split companies on -60.

Tests were run on SPSS. Sample results:

Similar approach was used for reverse stock split as well. Below we look at the final table and results from both the Stock Split and Reverse Stock Split announcements.

Stock Split

Final Result
In the above Stock Split table, we observe that as visible from the above t tests that the hypothesis that there are no abnormal gains due to stock splits has been accepted. The p value obtained by performing paired t tests for a sample set of 20 companies for various days from -60 to +60 show that the difference between the actual returns and expected returns is not significant and almost at all days from -60 to +60 less than 50% of data points showed positive excess returns.

Reverse Stock Split

Final Result
As visible from the above table, the data for the reverse stock split shows significant difference for