Browsing by Author "Abdurasaq Mustapha"

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    STOCK SPLITS AND DIVIDENDS: IMPLICATIONS FOR BID ASK SPREAD COMPONENTS
    (Ilorin Journal of Management Sciences, 2014) Lukman Adebayo Oke; Oladipupo Muhrtala Tijani; Abdurasaq Mustapha; Hafsat Olatanwa Afolabi
    Recent theoretical researches in equity market consider enhanced liquidity as the principal motivator for stock splits and stock dividends. However, empirical findings suggest mixed evidence and even a further decline in liquidity after the announcements or the effective dates (ex-dates) of these events. The purpose of this paper is to examine the effect of stock splits and stock dividends on liquidity using bid ask spread measures. The sample is composed of all the stock splits and stock dividends announcements on the Nigerian Stock Exchange (NSE), between 1990 and 2010. Using multiple regression analysis, we test the change of the various indicators of liquidity prior to the announcement period, between announcement and the ex-date, and post ex-date. The results show an increase in the absolute and relative spread after the ex-date of stock splits. This increase in the spread indicates an increase in investor transaction cost, a degradation of short-term liquidity and the fall of the market quality. This increase is further explained by order processing costs and inventory holding costs. The study recommends that companies should engage in strategies relating to the use of retained earnings in financing alternative investments rather than outstanding shares expansion through splits and scripts.