TAF PUBLISHING

The primary objective of a company is to increase the wealth of the shareholders. Every decision, policies or action must be made to favor the shareholders. Corporations conduct corporate actions to improve their performance or increase the wealth of the shareholders. Stock split is one of the several corporate measures perceived to be a positive corporate action. In this paper, the researcher wants to study factors that can affect investors’ reactions towards the same corporate action: stock split. It is believed that market volatility can cause a difference in investors’ reactions towards the same positive corporate action (stock split) as studied before. To analyze this, the researcher will first classify the stock split result in Cumulative Abnormal Return (CAR) based on the volatility of the period that the stock split is conducted in and the firm size that performs the stock split. The researcher will use one-way ANOVA to find out if there is a statistically significant difference in market reaction towards the stock-split event based on those two classifications. The researcher found that investors react differently towards the stock-split event in different market volatility conditions. It is also found that there is no difference in investors’ reaction towards stock split based on firm size. The researcher also conducts further research and found that investors react differently in different market volatility conditions in firms with small and medium market capitalization. While as in firms with large market capitalization, it is found that there is no statistically significant difference in investors’ reaction towards stock splits that are conducted in various market volatility conditions.