Stock Splits, Tick Size, and Sponsorship

  • Author(s): Paul Schultz
  • Published: Dec 17, 2002
  • Pages: 429-450
  • DOI: 10.1111/0022-1082.00211

A traditional explanation for stock splits is that they increase the number of small shareholders who own the stock. A possible reason for the increase is that the minimum bid‐ask spread is wider after a split and brokers have more incentive to promote a stock. I document a large number of small buy orders following Nasdaq and NYSE/AMEX splits during 1993 to 1994. I also find strong evidence that trading costs increase, and weak evidence that costs of market making decline following splits. This is consistent with splits acting as an incentive to brokers to promote stocks.

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