Further evidence on the liquidity effects of stock splits and stock dividends

Currently, there is a limited amount of empirical evidence suggesting that stock splits are associated with a decline in trading liquidity. This evidence directly contrasts with managements' professed intentions for undertaking a split. The evidence to date, however, is of a short‐run nature. This study reexamines the liquidity effects of stock splits and stock dividends by assessing both their short‐ and long‐term effects on trading liquidity (i.e., proportional trading volume and percentage bid‐ask spreads). The results suggest that stock dividends are associated with decreased proportional trading volume in both the short term and long term, but stock splits are not. The results also indicate that neither stock splits nor stock dividends have an effect on percentage bid‐ask spreads.