Stock Splits and Firm Profitability: An Analysis of Revenue Growth and Share Price Adjustments

Abstract

This study aims to investigate the impact of stock splits on firm profitability and shareholder wealth within the Indian equity market, focusing on revenue growth, share price adjustments, and cost of equity implications. A quantitative research approach was adopted, utilizing data collected from primary and secondary sources, including stock price data and financial reports. The study applied statistical techniques such as Sharpe ratio analysis, coefficient of variation, and performance metrics to evaluate post-split returns, volatility, and market performance. Data analysis involved descriptive statistics, correlation heatmaps, and visualizations to interpret the relationship between stock splits, market capitalization, and returns. The findings revealed that stock splits generally resulted in positive returns, particularly in the short term. Companies with strong financial performance and large market capitalization experienced higher returns post-split. The risk-adjusted performance, measured by the Sharpe ratio, improved for many companies, highlighting the benefits of strategic stock splits. Additionally, the study found that volatility plays a significant role in post-split performance, with less volatile companies generally yielding better returns.The study concludes that stock splits can enhance investor sentiment, improve liquidity, and lead to short-term stock price appreciation. Companies that execute stock splits amid favorable market conditions and strong financial health tend to perform better post-split. The findings underscore the importance of timing and business fundamentals in determining the success of stock splits.