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Stock Splits in Switzerland: To Signal or Not to Signal?


  • The authors thank the participants at the FMA European Meeting 2004 in Zurich, the EFMA Meeting 2004 in Basel, and especially Ken L. Bechmann, Neil Kellard, Tobias Studer, Zaher Zantout, and an anonymous referee for helpful comments; and last, but not least, we would like to thank the Lucerne University of Applied Sciences and Arts for financial support.


In Switzerland, the existence of a mandatory minimum par value inhibited many companies from splitting their stocks as they already traded at their minimum par value. These Swiss companies could split their stocks only after the legal minimum par value was lowered in July 1992 and again in May 2001. These two events provide rare opportunities to distinguish between stock splits that signal a permanent increase in stock price and splits that are merely a reaction to a regulatory change and thus have other motives. The significant return differences between the two samples are in line with the hypothesis that splits are a means to send positive signals to the stock market. Furthermore, while trading volumes remained largely unaffected after stock splits, relative tick sizes generally increased after a stock split, and bid-ask spreads often increased after a stock split.

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