Stock splits and information: The role of share price

Our empirical investigation of announced split factors, split announcement returns, and revisions of analysts' earnings forecasts shows that a firm's past history of stock splits plays a crucial role in both the design and ef fect of current splits. Managers appear to design splits to return their co mpany's stock price to the price level achieved after the last split. Moreo ver, when managers announce a split factor to achieve an even lower price t han in the last split, both investors and analysts interpret this as a sign al of especially positive information.