Does anyone else find this “peer pressure” governance to be astounding?
Excerpt: Peer pressure can have a powerful effect on corporate decision making, according to this paper, which finds that stock splits executed by companies competing in a given industry significantly increase the likelihood that industry counterparts will follow suit and divide their own stock — despite little evidence of a financial benefit, at least in the short term, from doing so.
In fact, stock splits undertaken by such peer companies had the same persuasive effect on a firm’s decision to do likewise as would a 40 to 50 percent increase in the price of its shares over the previous year, the kind of run-up that often precipitates a split. As further evidence that companies base their decisions on a close watch of their competitors, the authors found that firms were twice as likely to divide their stock within a year after their peers’ having reported positive returns from a split, compared with their reaction to reports of negative returns.
Read full article via The Peer Pressure Posed by Stock Splits. From Strategy + Business
