THE MARKETS RESPONSE TO RECURRING EVENTS - THE CASE OF STOCK SPLITS

A substantial body of literature suggests that stock splits convey inf ormation. In this paper we extend this literature by examining firms t hat split their stock at least twice during 1970-1988. We focus on fir ms with multiple splits to provide evidence on the market's use of pre vious split experience in interpreting a recurring event. Our major fi ndings are that stock price responses to both stock splits and post-sp lit earnings changes depend on earnings realizations observed after pr evious splits. These findings support the conclusion that the market u ses previous split experience to interpret a recurring event.