The Death of Stock Splits: An Increase in the Costs to Split

The percentage of firms engaging in stock splits has declined from 8.6% in the 1980s to just 1.0% in the 2010s. In this paper, we document a previously unknown cost of stock splits: failure to sufficiently beat earnings targets and its associated capital markets punishment. We show that both firms’ earnings announcement returns and likelihood of beating analysts’ expectations by at least two cents decline post-stock split. This patterned decline in both split activity and post-split returns only occurs for publicly-listed firms, whereas abnormal returns for exchange-traded and closed-end funds do not consistently vary over time. Overall, the results suggest that declining signaling benefits and increasing costs led to fewer stock splits in recent years.