Working Paper: NBER ID: w29212
Authors: Sheridan Titman; Chishen Wei; Wei Bin Zhao
Abstract: We identify a group of “suspicious” firms that use stock splits—perhaps, along with other activities—to artificially inflate their share prices. Following the initiation of suspicious splits, share prices temporarily increase, and subsequently decline below their pre-split levels. Using account level data from the Shanghai Stock Exchange, we find that small retail investors acquire shares in firms initiating suspicious splits, while more sophisticated investors accumulate positions before suspicious split announcements and sell in the post-split period. We also find that insiders sell large blocks of shares and obtain loans using company stock as collateral around the initiation of suspicious splits.
Keywords: stock splits; retail investors; market manipulation; China
JEL Codes: G12; G14
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| suspicious splits (Y40) | inflated stock prices (E31) |
| inflated stock prices (E31) | decline below pre-split levels (G34) |
| suspicious splits (Y40) | temporary price increase (P22) |
| insiders (G14) | sell shares (G24) |
| sell shares (G24) | obtain loans against inflated prices (G21) |
| suspicious splits (Y40) | attract retail investor attention (G24) |
| attract retail investor attention (G24) | increased buying activity (E44) |
| sophisticated investors (G24) | net sellers post-announcement (G14) |