Browsing by Author "Gunaratne, A.G.D.L.K."

Now showing 1 - 1 of 1
  • No Thumbnail Available
    Item
    Identification of Impact of Stock Splits on Liquidity Aspect of Stocks
    (Uva Wellassa University of Srilanka, 2011) Gunaratne, A.G.D.L.K.; Gunaratne, Y.M.C.
    Note: See the PDF Version Stock splits are a common and a very popular tool used by the corporations to increase the liquidity of stocks in the equity markets. A stock split can be defined as the increase in the number of outstanding shares of stock while making no changes in shareholder's equity. Splits are usually announced to create liquidity in a firm by reducing its share price and increasing the number of shares outstanding. While this does not impact on the intrinsic value of firms, it attracts retail investors as it is more affordable to them, The primary objective of a share split is to make a certain share more affordable to small investors by splitting the share at an agreed ratio. However, .a stock split does not change the intrinsic value of a stock and market capitalization of it at the time of the announcement of the split. Increased liquidity is the main advantage of stock splits. Liquidity can be generally defined as "the ability to trade large quantities quickly at low cost with less price impact". Through a stock split a corporation tries to increase the liquidity of the equity stock in the secondary market and the organization can reduce the cost of capital since the organization does not have to concern on the liquidity premium that the shareholders of the company are expected. This study attempted to identify the impact of stock splits on liquidity of a share. Therefore, this study aimed to address the question of, what is the liquidity behavior of a share after a stock split. Effect of stock split on liquidity of a share compared to the period before the split is analyzed in this study. Furthermore, this study identified the change of liquidity behavior of a share after the split in relation to the market. This study was based on 20 share splits which had been undertaken in Colombo Stock Exchange in the years of 2009 and 2010.