Credit Suisse AG has announced that it plans to implement a 1-for-10 reverse split
of UGLD, its VelocityShares 3x Long Gold ETNs, and USLV, its VelocityShares 3x Long Silver ETNs, the company said.
In particular, we examine whether the number of institutional investors and the percentage of shares that are held by institutional investors increase after reverse splits. We also examine whether changes in institutional holdings that result from reverse splits have any effect on shareholder wealth.
Reverse splits help remove the penny stock image for low-priced stocks, making them more acceptable to institutional investors.
We employ an empirical methodology that combines the difference-in-difference approach and the propensity score matching technique to measure the effect of reverse splits on institutional holdings using a control sample of non-reverse-split firms.
Reverse splits are unusual events in which a firm substitutes one share for multiple shares without any changes in total market capitalization of the stock.
Han (1995) examines why firms would employ reverse splits when they adversely affect shareholders.
Woolridge and Chambers (1983) report that stock returns decrease on the announcement dates as well as ex-date of reverse splits. Spudeck and Moyer (1985) argue that "reverse splits appear to be better characterized as a strong signal to the marketplace of management's lack of confidence in future stock price increases resulting from earnings improvement." They also show that trading volume declined significantly in the following days after the announcement of the reverse splits.
Table I presents descriptive statistics for reverse splits. Panel A shows the distribution by year.
Panel B shows that when grouped by trading venue, 1,254 reverse splits (77.8%) take place on the Nasdaq, while the NYSE and Amex account for 178 (11%) and 180 (11.2%), respectively.
Each reverse split
is expected each expected to be effective as of September 10, 2015.
The reverse splits will affect the trading denominations of these ETNs but it will not have any effect on the principal amount of the underlying notes, except in the cases of "partial ETNs."
The reverse splits will be effective at the open of trading on August 30, 2013 and these ETNs will begin trading on the NYSE Arca on a reverse split-adjusted basis on such date.