Intra-Industry Effects of Stock Splits: Focus on Insurance Companies

This paper examines the intra-industry effects of 120 stock split announcements within the insurance industry between 1985 and 2006. Our results of the valuation effects are suggestive of dominant competitive effects for stock splits by insurance companies, especially life insurers, thus indicating possible changes in the competitive balance of the industry. The results of our cross-sectional analyses suggest that for non-splitting firms with a high concentration of competition the industry effects are less favorable. Industry effects are more favorable when the valuation effects of the splitting firms are more favorable, when the splitting firms are larger, and when the non-splitting firms are more similar to the splitting firm. Overall, our results show that both industry-wide and firm-specific characteristics are important to explain the cross-sectional variation in the intra-industry effects, and that competitive effects and contagion effects are not entirely mutually exclusive.