Survival: A Motivation for Reverse Stock Splits

Frederick Adjei¹ and Mavis Adjei²

¹Economics and Finance Department, Southeast Missouri State University, Cape Girardeau, USA

²Marketing Department, SIU Carbondale, Carbondale, USA

Cite this paper:
Frederick Adjei and Mavis Adjei. Survival: A Motivation for Reverse Stock Splits. Journal of Finance and Economics. 2017; 5(5):204-210. doi: 10.12691/jfe-5-5-2

Abstract

This study investigates delisting avoidance on an exchange as a motivation for reverse stock splits. I examine the different motivations for reverse splits for stocks at different pre-split price levels by dividing the sample into two groups, below or equal to $2, and above $2. Using a control sample of firms receiving delisting warnings, I find that firms on the brink of delisting, use reverse splits to extend exchange listing time. For firms with a pre-split price above $2, I find that liquidity enhancement may be the motivation for reverse splits.

Keywords:
survival reverse stock splits

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