The Effect of Stock Split

on
PT. Multi Bintang Indonesia Stock Performance

Background

Some studies have been conducted to test the

relationship of stock price in terms of stock split actions
conducted by the company.
Pilotte (1997) in the study titled Earnings and Stock Splits
in the Eighties indicates that the market interprets stock
splits as signals of subsequent earnings increase.

Stock initially traded at:

Nominal price: Rp. 1.000/share
Offered price: Rp. 1.570/share
Peak price: Rp. 1.500.000/share in May 2013

Jijo and Narayanan (2002) in their study Market Reaction

to Stock Splits An Empirical Study found out that on the
date of announcement, there was an abnormal return.

Issued 1:100 stock split in 6 November 2014 at current stock price

of Rp. 1.250.000/share for liquidity purpose to Rp. 12.500/share

A study entitled Market Reaction to Stock Market Splits:

Evidence from India by Gupta and Gupta (2007) states
that large splits are found to improve the trading volume of
shares and there was increase in the daily number of traders.

Current price: Rp. 9.337/share by 1st November 2015

Research Question

Andoain and Bacon (2009) examine whether the investor can

make an above normal return by relying on public
information impounded in a stock split announcement.

What is the impact of stock split towards the stock price of the
company?
Does the stock liquidity increase after the stock split? If yes, why does
the stock fall in long term?

Hypotheses

Research Objective

To analyze the correlation between stock performance to the stock split

event
Knowing the long term effect of stock split
To give recommendation if similar occurrences happen again in the future

Research design:

Stock split affects the stock price and stock liquidity

Stock split has no significant influence in the stock prices and
liquidity
Stock split affects the long-term stock performance
Stock split doesnt affect the long-term stock performance

Data selection:

Literature
Review

PT. Multi Bintang Indonesia portfolio

from 5 November 2014-1 November
2015
IHSG portfolio from 5 November
2014- 1 November 2015

Daily Returns

The daily returns were calculated for both

individual security as well as Market Index
using the following equation

Rjt=Log (Rt/ Rt-1)

Data
Analysis

Conclusion &
Recommendation

Security Return Variability

Research timeline:
J

Literature
review

Chapter
1 and 2

Chapter 3

Collect
data

Analyze
data

Join
Final
Defense Conference

Revise
Final
Paper

Create
Final
Paper

Sources of data:

PT. Multi Bintang

Indonesia annual report
2014 and 2015
Finance Website
Journals

Tools used for Analysis:

Data
Collection

Problem
identification

edric.julio@sbm-itb.ac.id

Review of Literature

PT. Multi Bintang Indonesia was initially built by the Dutch in 1931
with the name NV Nederlands Indische Bierbrouwerijen. Changed
to the current name when the company IPO in 1981.

Edric Julio Kinata/19013107

The daily returns were calculated for both

individual securities as well as Market
Index using the following equation
SRV i,t= [AR^2 i,t/V(AR)]*100

Abnormal Return

Whereas:

Rjt = actual daily return at security I on

day t
Rmt = daily market return at the IHSG on
day t
SRV= Secruity Return Variability
AR = Abnormal return
V(AR)= Variance of Abnormal Returns
during the announcement period
j, = ordinary least squares intercept; the
average rate of return of stock at the
market return is equal to zero
j = stock sensitivity to market return

It measured the deviation of the

stockholders actual rate of return from the
expected returns.

Rjt= j+ j Rmt +jt

Reference:
He, Wang. (2012). Stock Split Decisions: A Synthesis of Theory and Evidence
Marchman, B. (2007). Reverse Stock Splits: Motivations, Effectiveness and Stock Price Reactions
Kumar, Halageri. (2011). Impact of Stock Split Announcement on Stock Price
Aduda, Caroline. (2010). Market Reaction to Stock Splits: Empirical Evidence from the Nairobi Stock Exchange