LONG-RUN COMMON-STOCK RETURNS FOLLOWING STOCK SPLITS AND REVERSE SPLITS

We examine 1-3-year performance of common stocks following 5,596 stock split and 76 reverse split announcements made during the period 1976- 91. For stock splits, on average, the 1- and 3-year buy-and-hold abnor mal returns after the announcement month are 7.05% and 11.87%, respect ively. For reverse splits, the corresponding abnormal returns are -10. 76% and -33.90%. The results suggest that the market underreacts to bo th the stock split and the reverse split announcements, We also find t hat the announcement period and the long-run abnormal returns are both positively associated with an increase in dividends.