Critical Finance Review > Vol 6 > Issue 1

Catering Through Nominal Share Prices Revisited

M. Fabricio Perez, Lazaridis School of Business and Economics, Wilfrid Laurier University, Canada, mperez@wlu.ca Andriy Shkilko, Lazaridis School of Business and Economics, Wilfrid Laurier University, Canada, ashkilko@wlu.ca
 
Suggested Citation
M. Fabricio Perez and Andriy Shkilko (2017), "Catering Through Nominal Share Prices Revisited", Critical Finance Review: Vol. 6: No. 1, pp 43-75. http://dx.doi.org/10.1561/104.00000042

Published: 27 Mar 2017
© 2017 M. F. Perez and A. Shkilko
 
Subjects
 
Keywords
G20G39
Stock splitsNominal share priceCatering
 

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In this article:
1. Introduction
2. Data and main variables
3. Results in levels and persistence tests
4. Alternative techniques
5. Conclusion
Appendix
References

Abstract

Finance research suggests that firms cater to investors’ time-varying preference for low-priced stocks by managing nominal share prices. We show that the existing empirical tests of such catering use highly persistent data that may lead to finding significant relations between variables that are actually independent (spurious regression bias). We revisit the catering hypothesis applying five estimation techniques that reduce the effects of data persistence. Adjusted for persistence, the data offer little evidence that stock splits respond to catering incentives. There is some, although mixed, evidence that catering incentives affect the firms’ choice of the post-split prices and the IPO prices.

DOI:10.1561/104.00000042

Online Appendix | 104.00000042_app.pdf

This is the article's accompanying appendix.

DOI: 10.1561/104.00000042_app