Stock splits are a puzzling corporate phenomenon. Stock splits happen frequently; less often firms consolidate their outstanding common shares in a reverse stock split. It is widely believed that stock splits are purely cosmetic events because the corporation’s cash flows are unaffected, each shareholder retains his proportionate ownership and the claims of other classes of security holders are unaltered. If stock splits were purely cosmetic it would be surprising to find them associated with real effects. Yet, real effects are associated both with the announcement of the split and with its occurrence ‘ splits are associated with statistically significant stock price revaluations and unusual volumes of trade and return variances around the announcement dates and, even more surprisingly, around the execution dates. These effects have been reported in a number of international studies. These results imply that if managers could increase share prices by splitting their firm’s stock, both undervalued and overvalued firms would choose to split their shares, thus eliminating the informational (favorable) content of the decision. However, as the persisting positive market reaction to stock splits indicates, splits must credibly signal such positive company specific information. Since the publication of the classic paper by Fama, Fisher, Jensen and Roll (1969), the signaling hypothesis and the trading range hypothesis have emerged in the finance literature as the leading explanations of stock splits. The Nordic finance literature contains a rather limited number of studies related to shareholder wealth effects of stock distributions such as stock dividends and stock splits2. One of the few studies of stock splits on Nordic data is the Liljeblom (1989) doctoral thesis which is conducted on data for the Stockholm Stock Exchange during the period 1977’85. Therefore, I came to the conclusion that there is a need for a more comprehensive study of Finnish and Swedish stock splits using more recent data. More specifically, for the Finnish markets there is no previous research on the possible announcement or execution effect of stock splits. Similarly, there is no previous research on a possible volatility shift caused by stock splits. Only liquidity effects of stock splits have been studied but with a minimal sample. For the Swedish markets, the announcement effect of stock splits has been studied but not the execution effect. Also the volatility shift following stock splits has been studied for the Swedish markets but not the liquidity effects of stock splits
2. Aims of the Study
A number of aims have been developed for this study in order to study affecting factors on the stock market trading sector.
The overall aim of this project is to investigate the impacts of Stock Split on Stock Prices and the real motives for adopting a policy of corporate stock split
The overall objective is divided into the following sub-goals:
– Determine the dimensions of how Stock Split process affecting the Stock Prices in Egyptian stock exchange
– Identify the most important motivations about adopt a Stock Split policy for companies managements
– Clarify the systems, policies and procedures taking by the investors to deal with the problems of understand the rapidly changing stock prices
– Identify the affecting factors in the Stock Split process
– To reach conclusions and recommendations on how to make investment decisions to improve the stock investment returns
3. Research Problem
The main questions of this project are as follows:
– What is the impact of adoption of listed companies in the Stock Exchange of Stock Split policy on its shares prices?
The Sub questions of this project are as follows
– What is the impact of adoption of listed companies in the Stock Exchange of Stock Split policy on Stock Prices Returns?
– What is the impact of adoption of listed companies in the Stock Exchange of Stock Split policy on Stock Prices Volatility?
– What is the impact of adoption of listed companies in the Stock Exchange of Stock Split policy on Trading Volume?
4. Literary work
Writing a literature review based on the following sources
– Arabic and foreign books.
– Arabic and foreign periodicals.
– Theses (MA and PhD).
– Newsletters, reports, and various statistics.
– Published researches.
5. Importance of the study
We Can highlight the importance of research through two main dimensions:
5/1 Theoretical importance
– This research try to reach for the formulation of a theoretical framework to determine relationship between Stock Split and Stock Prices
– This research is scientific attempt to assess the role and impact of Stock Split policy on investment decisions
– Enriching the Egyptian and Arabian library in the field of financial management , especially in the lack of Egyptian and Arabian studies on the stock spilt policy impacts and investors reactions to this policy
5/2 Practical importance
– study try to reach a set of results that can help investment decision-makers (institutions – individuals ) to improve and raise the level of returns, which is reflected to improve and increase the growth of firms activities
– study not only determine the impacts of stock split policy on its shares prices, but extends to identify the most important impacts for its occurrence to guide the decision making process
6. variables of the study
The research aims to test the relationship between Stock Split policy as dependent variables and the ( Stock Price Returns, Stock Prices Volatility, Trading Volume ) as independent variables through the study of the relationship between the following variables:
‘ independent variables :
‘ Stock Split policy
‘ dependent variables:
‘ Stock Prices Returns
‘ Stock Prices Volatility
‘ Trading Volume
7. Practical study
The Practical study includes study population and the study sample as follows:
7/1 Study population
The study population includes companies which took the split decision in the Stock Exchange of Stock
7/2 Study sample
Will be selected a sample of the study population To be representative of the community of the study, the researcher choose a random sample of the study population in order to test the study hypothesis
8. Research hypothesis
Hypothesis 1:
There is no significant relationship between Stock Split policy and Stock Prices Returns
Hypothesis 2:
There is no significant relationship between Stock Split policy and Stock Prices Volatility
Hypothesis 3:
There is no significant relationship between Stock Split policy and Trading Volume
9. Study Data
9/1 Qualitative and Quantitative Methods
The literature demonstrates the diversity of methodologies and research instruments available that can help with the generation of data and information relating to particular research topics.
the first undertaking is to decide which approach best identifies most appropriate solutions from which to draw suitable conclusions relating to the issues under investigation
Researcher will use quantitative approach to collect data about the use of strategic planning concepts
The quantitative approach defined as an interdisciplinary field that uses a multi method approach to research. It refers to the understanding of human experience using numbers and statistics,
qualitative research is open and interactive and observation precedes
Theory whereas quantitative research is structured and theory precedes observation.
Qualitative research is described as ‘subjective’ in nature, emphasizing the meanings, experiences, description, and so on
The different issues between the qualitative and quantitative research in the nature of data.
9/2 Secondary Data
secondary data is information that has been previously gathered for some purpose other than the current research project.
researchers consider the possibility of re-analyzing data that have
already been collected for some other purpose.
secondary data includes both raw data and unpublished summaries surveys and publish official statistics covering social, demographic and economic topics.
There are two types of secondary data: internal and external.
Internal secondary data maintained that the answers to many problems lie within organizational documents; he added that many companies do not make full enough use of the information that it regularly generates.
Researcher will collect internal secondary data by prepared a questionnaire, interviews
External sources of data include statistics and reports issued by governments, health organizations, and other reputable organizations.
Additionally, information is frequently circulated from other sources, such as trade directories to provide further information.
researcher will collect internal secondary data from periodicals, previous researches, thesis and books
9/3 Primary Data
primary data can be obtained and collected through a variety of ways. These may include observation, interviews and questionnaires, conversation and discourse relative to a specific research study.
10.Limitation of the research
The researcher concentrated on the stock split policy as the factor which has the only effect on the trading volume, Prices Volatility and Stock Prices Returns and Neglected the other factors which could affect the dependent variables of the research such as political stability and economic decisions that affect the performance of the Egyptian Stock Exchange negatively or positively. Neglect the ratio of the split for the sample of the study