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- Publisher Website: 10.1016/j.jbankfin.2023.106939
- Scopus: eid_2-s2.0-85162083398
- WOS: WOS:001037009300001
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Article: Behavioral bias, distorted stock prices, and stock splits
Title | Behavioral bias, distorted stock prices, and stock splits |
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Authors | |
Keywords | Anchoring bias Distorted prices Information production Investment-price sensitivity Stock split |
Issue Date | 17-Jun-2023 |
Publisher | Elsevier |
Citation | Journal of Banking and Finance, 2023, v. 154 How to Cite? |
Abstract | We propose that firms use stock splits as a means of attracting attention and inducing information production to correct price distortion caused by investors’ 52-week high anchoring bias. Our analysis shows that firms are more likely to split stocks when their prices are near 52-week highs, especially if they are highly profitable and undervalued. After splits, undervaluation gradually disappears. Moreover, these splits are associated with a slower market reaction and a more positive post-split drift, consistent with the notion that investors’ anchoring bias hinders price adjustment, leading to a gradual price correction. In addition, the likelihood of such splits increases with CEO wealth-performance sensitivity, and investment-price sensitivity increases following splits. Our evidence suggests that firms utilize stock splits to correct mispricing induced by investors’ 52-week high anchoring bias. |
Persistent Identifier | http://hdl.handle.net/10722/331008 |
ISSN | 2023 Impact Factor: 3.6 2023 SCImago Journal Rankings: 1.663 |
ISI Accession Number ID |
DC Field | Value | Language |
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dc.contributor.author | Li, Fengfei | - |
dc.contributor.author | Lin, Ji Chai | - |
dc.contributor.author | Lin, Tse Chun | - |
dc.contributor.author | Shang, Longfei | - |
dc.date.accessioned | 2023-09-21T06:51:56Z | - |
dc.date.available | 2023-09-21T06:51:56Z | - |
dc.date.issued | 2023-06-17 | - |
dc.identifier.citation | Journal of Banking and Finance, 2023, v. 154 | - |
dc.identifier.issn | 0378-4266 | - |
dc.identifier.uri | http://hdl.handle.net/10722/331008 | - |
dc.description.abstract | <p>We propose that firms use stock splits as a means of attracting attention and inducing information production to correct price distortion caused by investors’ 52-week high anchoring bias. Our analysis shows that firms are more likely to split stocks when their prices are near 52-week highs, especially if they are highly profitable and undervalued. After splits, undervaluation gradually disappears. Moreover, these splits are associated with a slower market reaction and a more positive post-split drift, consistent with the notion that investors’ anchoring bias hinders price adjustment, leading to a gradual price correction. In addition, the likelihood of such splits increases with CEO wealth-performance sensitivity, and investment-price sensitivity increases following splits. Our evidence suggests that firms utilize stock splits to correct mispricing induced by investors’ 52-week high anchoring bias.<br></p> | - |
dc.language | eng | - |
dc.publisher | Elsevier | - |
dc.relation.ispartof | Journal of Banking and Finance | - |
dc.subject | Anchoring bias | - |
dc.subject | Distorted prices | - |
dc.subject | Information production | - |
dc.subject | Investment-price sensitivity | - |
dc.subject | Stock split | - |
dc.title | Behavioral bias, distorted stock prices, and stock splits | - |
dc.type | Article | - |
dc.identifier.doi | 10.1016/j.jbankfin.2023.106939 | - |
dc.identifier.scopus | eid_2-s2.0-85162083398 | - |
dc.identifier.volume | 154 | - |
dc.identifier.isi | WOS:001037009300001 | - |
dc.identifier.issnl | 0378-4266 | - |