We examine one- to three-year performance of common stocks following 5596 stock split and 76 reverse split announcements made during the period 1976 to 1991. For stock splits, on average, the one- and three-year buy-and- hold abnormal after the announcement month are 7.05% and 11.87%, respectively. For reverse splits, the corresponding abnormal returns are - 10.76% and -33.90%. The results suggest that the market underreacts to both the stock split and the reverse split announcements. We also provide evidence that the signal in stock splits is related to change in dividends. In particular, the announcement period and the long-run abnormal returns are both positively associated with an increase in dividends.
