Although stock splits seem to be a purely cosmetic event, there exists ample empirical evidence from the different capital markets all around the world that stock splits are associated with abnormal returns on the announcement day. This dissertation employs a sample of German companies that announced a stock split during the years 2008 and 2009, a period which signals the beginning of the economic crisis. The main objective the current study assesses is the impact of stock split announcements on stock prices. The results are not consistent with the findings in other capital markets, including the U.S., as no evidence of positive price reaction is observed around the announcement day of German stock splits. Institutional differences between Germany and other capital markets allow the examination of one of the main hypothesis on the announcement effect, which is the signaling hypothesis. We argue that legal restrictions strongly limit the ability of German companies to use a stock split for signaling and that stock price reactions are not related to future earnings.
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