Table of Contents

CHAPTER 1............................................................................................. 3
INTRODUCTION...................................................................................... 3
I.1 Research Background.....................................................................3
I.2 Problem Identification and Statement............................................6
I.3 Research Scope and Limitation......................................................7
I.4 Research Objectives.......................................................................7
I.5 Research Benefits..........................................................................8
CHAPTER II............................................................................................. 9
LITERATURE REVIEW.............................................................................. 9
2.1 Capital Market............................................................................... 9
2.1.1 Definition of capital market....................................................9
2.1.2 Type of Capital Market..........................................................10
2.1.3 The Roles of Capital Market..................................................12
2.1.4 Capital Market Instruments...................................................13
2.2 Stock........................................................................................... 13
2.2.1 Definition of Stock.................................................................13
2.2.2 Types of Stock.......................................................................15
2.2.3 Stock Price............................................................................ 17
2.3 Stock split................................................................................... 18
2.3.1 Definition of Stock Split.........................................................18
2.3.2 Types of Stock Split...............................................................19
2.3.3 The Reason Companies Do Stock Split..................................20
2.3.4 Benefits of Stock Split...........................................................21
2.3.5 Theory in the Stock Split.......................................................21
2.4 Abnormal Return.........................................................................22
2.5 Trading Volume Activity...............................................................24
2.6 Previous Research Review...........................................................25
2.7 Theoretical Framework................................................................26
2.8 Articulating Hypothesis from Theoretical Framework..................26
CHAPTER III.......................................................................................... 27
DATA PROCESSING METHOD................................................................27
3.1 Research Method........................................................................27

3.2 Sampling Method........................................................................27

3.3 Research Data............................................................................. 28
3.4 Research Variables......................................................................29
3.4.1 Definition of Operational Variable.........................................29
3.5 Analysis Data.............................................................................. 30
3.5.1 Descriptive Statistic..............................................................30
3.5.2 Normality Test.......................................................................30
Reference............................................................................................. 32

CHAPTER 1
INTRODUCTION

I.1

Research Background
At the first time of the company was build, the owner hopes that the

company can maintain the viability of the company and also could earn much
profit. To reach that hopes, the owner needs much money to keep the company
still going concern in its business. That is becoming the main problem that should
be solved, because of the economic condition in Indonesia has not been stable yet,
it will be more difficult to solve.
The capital market could be one of a tool to solve that financial problem.
Capital Markets is one of the sources of external funding companies to improve
long-term capital needs of the company by selling shares and obligations.
According to Husnan (1994:3), capital market is the financial instruments
(securities) for the long run that could be traded either in the form of debt, that
published by the government, public authorities, or private parties. In Indonesia,
many companies that have been go public companies listed in the capital market.
They have listed in Indonesia Stock Exchange as one of the big capital market in
Indonesia.
The function of capital market is as a mediator between the companies
that needs the money to their operational activities and investors who will invest
their money in those companies. With the presence of capital market, expected
that the activity of economic will increase because the capital market is the
alternative funding for companies.
Investors will not invest their money, if there is no information that
could convince them that they should invest in those companies. By using the
relevance information that is prepared by companies, investors could value the
3

prospect of a performance those companies itself, so the investors could get the
view of the risk and expected return of stock that owned by companies. One of the
important information is the announcement of the corporate action. Corporate
action is the action that done by the companies that has the significant impact
towards the continuity of operation, the price of stock, and the stockholders. One
of kind the corporate action is stock split.
Stock split is a corporate action when the company divides the existing
number of shares into multiple shares. The company usually does this action when
the stock price in the market is high. By issuing the stock split, it will be attract
many investors, because the price of stock split is affordable than the stock price
in the market. According to Keown, Scott, Martin, Petty (1996), and quoted by
Rohana, Jeannet, Mukhlasin (2003), said that the manager has many reasons to do
stock split, such as:
1. To make the stock price is not too expensive, so it will increase the amount
of stockholders and also the liquidity of stock trading
2. To restore the price and the size of the average stock trading to the range
that has been on target
3. To bring the information about the investment opportunities in the form of
increasing the earnings and cash dividend
Stock split as one of the information that can be effect on the Indonesia
Stock Exchange, may allow the changes such as price, yield, and also the volume
of trade stock. Companies that have go public, have the desire to increase the
value of the company. One way that could increase the value of the company is a
rising stock prices because the market price of the stock may be a reflection of the
4

value of the company. If the increasing in stock price is overvalued by the market,
it can resulted in decreasing the ability of investors and it also will affect to
volume stock trading. The company issuing the shares must always pay attention
to the price of its shares.
Moreover, this corporate action also will give the positive information
and reaction because there will be the assumption if the stock split is a signal if
there will be the improvement of the companys performance that could increase
the dividend for the investors. This positive reaction will make the significant
value of Abnormal Return. The presence of this information transfer is indicated
by the significant of Abnormal Return in the other companys stock in the same
industry (Almilia and Kristijadi, 2005).
Abnormal Return is the amount of return realization security which is
different with the expected return that is based on the return in the market and the
relationship between security and market (Reilly and Brown, 2011: 155). Not
only for the Abnormal Return but also for Trading Volume Activity that positive
reaction will effect. Based on trading range theory which states that the stock split
will cause the increasing of trading volume activity or the increasing of liquidity
because the price is more attractive for investors. This result can indicate that the
stock split can cause the Trading Volume Activity changes significantly before and
after the announcement of stock split.
The impact of stock split that has been done by the companies have been
researched before there is the research gap from those researches. The result of
those past researches indicate there is the controversy according to the effect of
stock split. Based on the research that has been done by Grinblatt, Masulis, and
5

Titman (1984) quoted from Sutrisno (2000) define, Around the announcement of
stock split shows there are abnormal stock behavior. (pg.3)
Based on the result of research about the stock split, in general there are
two kind of different opinions towards the variables that has been researched, so
the writer is interested in discussing further about the stock split, in the form of
thesis

titled

"ANALYSIS

THE

MARKET

REACTION

TOWARDS

ANNOUNCEMENT OF STOCK SPLIT INDICATED BY THE ABNORMAL

RETURN AND TRADING VOLUME ACTIVITY FOR THE MANUFACTURE
COMPANY LISTED IN IDX FOR THE PERIOD YEAR 2011-2014.

I.2

Problem Identification and Statement

The high price of stock caused the decreasing of investors abilities to

acquire the stocks and also the liquidity of stocks. Stock split is one of corporate
action that has done by the companies that can make the price of stock lower than
before, make the price of stock is affordable, and increase the liquidity of stock in
the market. Besides, by doing the stock split, a company hopes that investors will
consider it as a good news so there will be the positive value for the Abnormal
Return and Trading Volume Activity around the announcement of stock split that
could change significantly.
In fact, even from the some last researchers stated that there is no the
significant changes for the average of Abnormal Return and Trading Volume
Activity before and after the announcement of stock split. This contrast make the
investors are confused because they want to get the high return from those stocks.
In this case, they want to get the positive value of Abnormal Return and Trading

Volume Activity. Based on the topic above, the problem would be identified as
follows:
1. Is there the reaction of market toward the announcement of stock split?
2. Do the Abnormal Return simultaneously giving the significant effect
before and after the announcement of stock split on manufacturing
company that are listed in Indonesian Stock Exchange?
3. Do the Trading Volume Activity simultaneously giving the significant
effect before and after the announcement of stock split on
manufacturing company that are listed in Indonesian Stock Exchange?

I.3

Research Scope and Limitation

Discussions of stock split only focused on the value of Abnormal

Return and Trading Volume Activity before and after the announcement of stock
split to public. The research subject is the financial statement of manufacturing
companies that are listed in Indonesian Stock Exchange and available on
Indonesia Capital Market Electronic Library. The period of the financial statement
that will be taken is 5 years from the year 2010 2014.

I.4

Research Objectives
The researcher intended to achieve these following outcomes:
1. To analyze the stock reaction toward the announcement of stock split
that is indicated by the Abnormal Return and Trading Volume
Activity
2. To analyze the difference of Abnormal Return and Trading Volume
Activity before and after the announcement of stock split

3. To prove if the announcement of stock split is the corporate action

that can give the economic benefit for the companies

I.5

Research Benefits
As for the benefits to be gained for this research:

For the investor

The results of this research are expected to be used as one of consideration
in decision making for investors to invest and get the high return.

For the company

The results are expected to give the information for the company about
decision for announcing the stock split to the public.

For the researcher

To gain clear understanding and knowledge in the application of stock split
in the real to develop students ability to identify and solve problems,
thinking logically and systematic to report the results of its research.

For the reader

This research might be used as the additional knowledge and sources or
reference for the future research.

CHAPTER II
LITERATURE REVIEW
8

2.1 Capital Market

2.1.1 Definition of capital market
Fabozzi Modiglani, and Jones (2010) describe financial market as the
market where financial assets are exchanged or traded. There are two principal
roles of financial market. The first principal is to transfer fund from the party
who has excess fund to the party who need additional fund to run their
business. The other role is to determine the required return on financial assets
as the effect of selling and buying activities. Financial market provide the
selling mechanism to the market participants and also help them to reduce the
transaction cost like searching cost and information cost. Financial market can
be classified by many ways like by the type of financial claim, it can be
classified as debt market and equity market. It also can be classified as money
market and capital market in the term of claim maturity.
Miller and Van Hoose (2004) define that capital market is market for
financial instruments with maturities of one year or more. The reason for the
name instruments with such long maturities are likely to be associated directly
with funding capital investment projects. (p.55)
Mishkin and Eatkins states (2000), Capital market is the market which
longer-term debt (original maturity of year or greater) and equity instrument
are traded. (p.16). It means the capital market is as a source of financing of the
corporate world and the alternative investment for the investor.

Lawrence J. Gitman (2000) explains, The capital market is a financial

relationship created by a number of institutions and arrangement that allows
suppliers and demanders of long term to make transactions. (p.50).
The essential definition of capital market is the market where securities
such as shares and bonds are issued to raise medium to long-term financing,
and where the securities are traded. Capital market has the numerous
participants including individual investors, institutional investors such as
pension funds, municipalities, governments, companies, organizations, and
financial institutions.
In Indonesia, the capital market is held by Indonesian Stock Exchange.
According to Law No. 8 year 1995 Paragraph 2 Article 7, the stock exchange is
form objectives is to an administer an order, fair, and efficient stock trading. In
conducting the activities, Indonesian Stock Exchange is supervised by capital
market supervisory agency (BAPEPAM). Besides, BAPEPAP has the role to
give founding for the participant in stock exchange and organize the activities
in the capital market.
2.1.2 Type of Capital Market
Sunariyah (2004) defines, capital market based on the types and the
transactions:

Types of Capital Market

Primary Market
10

The part of the capital markets that deals with the issuance of new
securities. This is the market for new long term equity capital where
the securities are sold for the first time. In a primary issue, the
securities issued by the company to investors.

Secondary Market
Known by the aftermarket, it is the financial market where issued the
previous securities and financial instruments like stock, options, bonds,
and features that bought and sold. The stock price in this market
defined by the government and offer between seller and buyer
according to market mechanism.

The Capital Market In Terms of Transaction Process

Spot Market
The financial market that is trade in the securities to be submitted
spontaneously. It means if someone buys the financial services then at
that time will also receive the services have been purchased.
Future or Forward Market
The financial markets where delivery of securities conducted in the
future in accordance with the agreement. The transaction processing
load the timing of the transaction agreement and the time of delivery
should be to do so requires a transfer of wealthterm certain time.
Options Market
11

Financial market that trade the right to determine the choice of (sell or
buy) to stocks or bonds, the choice is approval or contractual rights of
shareholders to buy or sell in certain time.
2.1.3

The Roles of Capital Market

Jogiyanto (2003) states, " Capital markets have important role in a country,
stock market also is an indicator of success to determine the economic
condition a country". (pg.11). The roles of capital market such as:
A media to improve the company needs in the long term by selling the
shares and issuing bonds
To attract the buyers and sellers to participate, so the capital market will be
more liquid and efficient
A media of allocation the fund from lender to borrower
Besides, Husnan (2001), defines The existence of capital markets has
some appeal from the investors, such as:
The stock market will be an alternative as a collector of funds other than
banking system. Capital markets allow companies to issue the securities
in the form of a letter of debt (bonds) or a certificate of ownership
(stocks).
Capital markets allow investors to have a variety of investment options
according to their risk preferences. With the capital markets, allowing
investors

to

diversifying

investments

according

to

their

risk

responsibilities and level of benefits they expect.

2.1.4

Capital Market Instruments

12

The principle of capital market instruments are all of kinds the securities.
The notion of some instruments usually appear in the capital market, are as
follows:
Shares (stock), a letter of ownership or possession a person or entity
within a company.
Rights, a right granted to the previous shareholders to purchase additional
new shares issued by an enterprise.
Bond (Bond) , is the evidence of the issuer's debt which is guaranteed by
the insurer that contains a promise of the final payment or other
appointments that will be paid on the maturity date.
Warrant, the rights granted to the owner bonds to buy a certain number of
shares in the future with the price that has been decided before.

2.2 Stock
2.2.1 Definition of Stock
There are valuable letter that go public company have and declare that the one
who buy it from the company through capital market will become one of the
owners of the company, the valuable letter is called stock.
Tandelilin (2001) states, Share is proof ownership of the asset one of the
company that issued the shares by owning shares of a company, and the investor
will has the right to get the income and the companys wealth after deducting the
payment of all companys liabilities.

13

Griffin and Elbert (2002) define, stock is the evidence of the companys
ownership. By buying the stock of the company the shareholders have become the
one of the owner of the company. Stock can be defined as a sign of ownership or
possession of a person or entity to a corporation or limited liability of the
company. (pg.51)
The nature of the investment is to provide a role for investor to gain the
profits. Each shareholder is a part of the owner that company, so they are entitled
to a portion of profits. However the right is limited because the shareholders
entitled to an enterprise income only after all liabilities are met. Share or stock is
the evidence of the shareholders that shareholders have become one of the owners
in one company that sell their share or stock in the capital market. Kertonegoro
(2001) stated that stock is a form of the investor participation in equity capital or
the evidence of the ownership of the company.
Based on Syahrul et all (2000) by buying stock the shareholders will obtain
dividend, capital gain, and credit and dominance toward the company where the
shareholders have the shares.
Weston and Copeland (2001) defines, The stock price of the company that
are offered in the capital market can be increasing or decreasing from the book
value of the stock, and it depends on the net income of the company.
According to Kertonegoro (2001), there are three objectives of the investors
that buy stock/shares in the capital market, which are:

14

 As capital accumulation means that investors will prioritize long

term investment, thus they can search the stock that are still growing
to obtain capital gain or the stock that can generate dividend
As a warehouse value, it means that the investor will prioritize the
principal security, which means that the investor will search and buy
blue chip stock and other non-speculative stock.
As source of revenue means that the investor will prioritize on the
stock that can generate high dividend, and the company are in a
good condition.
2.2.2 Types of Stock
Fakhruddin and Hadianto (2001:12), stated that the stock can be classified into
three types, which are:
a Grounded on the method of the vote to transfer, stock can be divided as:
Bearer stock
Bearer stock is the stock that the name of the shareholder is not
written to make the change of the ownership of the stock from one
investor to another investor can be change easily.
Registered stock
Registered stock is the stock that shareholders name will be written
in there, where the change of the ownership of the stock from one
investor to another investor must pass through procedure.
15

Grounded on the method of the claim, stock can be divided as:

Common stock
The stock that does not have any special rights/authority and the
shareholders will be placed last in distribution of the dividend.
Preferred stock
The stock that have specialize rights/authority and it has the
characteristic combination between bond and common stock because
it can produce constant revenue (like the interest in bond) but it also
can have a result which is unexpected to the investor.

Grounded on the method of the stock performance, stock can be divided as:
Blue chip stocks
The stock of company that have high reputation as the leader of the
industry compare to the other company that are in the same industry
and the dividend that are paid to the shareholder that hold blue chip
stocks will be divided in stable and constant period.
Income stocks
Income stocks are the stock of the company that can pay the
dividend higher than the average dividend from the previous period.
Growth stocks

16

The stock that comes from the company that have higher growth
revenue, as the leader of the industry that have high reputation.
Speculative stocks
The stock of the company that cannot be consistent in the spreading
the dividend from one period to another period, but it has the ability
to produce higher revenue in the future even though it is not certain
matter.
Counter cyclical stocks
The stock that will be not influenced by the conditions of macroeconomic or the general business situation.
2.2.3 Stock Price
The stock value will be paid by the investors depend on the results are
expected to be accepted and the risk involved in the purchase transaction.
Assessment included determining the value of a stock that is necessary to obtain
the performance standards that can be used to assess the benefits in the investment
of stock is concerned.

According to Tandelilin (2001:183) stated that there are three kinds of value
in stock assessment which are:
Book value
The value of the stock that is calculated based on the book keeping
company that issued the stock.
17

 Market value
The value of the stock that is shown in the market price on the capital
market.
Intrinsic value
Known also as theoretical value is the value of the stock that is actual
or supposed to happen.
According to Horne et all (2001) argued that market prices act as a
barometer of business performance. The market price indicates how well
management duties on behalf of the shareholders. Therefore, management is
always in control. The shareholders will be satisfied with the performance of
management that can sell their shares and invest the money in order companies.

2.3 Stock split

2.3.1 Definition of Stock Split
A stock split is a decision by the companys board of director to increase the
number of shares that are outstanding by issuing more shares to current
shareholders. For example, in 2-for-1 stock split, every shareholder with one stock
is given an additional share. So, if a company had 10 million shares outstanding
before the split, it will have 20 million shares outstanding after 2-for-1 split. A
stock split is usually done by companies that have seen their share price increase
to levels that are either too high or are beyond the price levels similar companies
in their sector.

18

According to Jogiyanto (2003:415) stated that stock split it means break a

piece of shares becoming n shares, where the price of the new shares per sheet
after the stock split is equal to 1 / n of the previous shares.
Stock split (split up) usually carried out by the company at the price the stock
is considered to be too high resulting in the investor 's purchasing power reduced (
Ewijaya in Muniya Alzeta , 2008). Therefore, stock split done because it expected
can give the benefits, among others (Scott , Martin , Petty , Keown , 1999):
The stock is not too expensive so it can increase the number of
shares holder and increase the liquidity of stock trading.
To restore the price and size of the average trading stock to range tha
has been targeted.
To bring the information on investment to take the opportunities in
the form of improved earnings and cash dividends.
Grinblatt , Masulis and Titman in Winarso (2005 ) stated that if stock splits ,
even though no economic value, but it provides the positive signal to the cash
flow of the company in the future. Positive signals from the announcement of a
stock split interpret that the manager of the company will deliver a good financial
performance prospects that can be considered improve the welfare of investors.
2.3.2 Types of Stock Split
According Erwijaya (1999), there are two types of solution for the shares
split those are splitting up ( split up ) and breaking down ( split down / reverse
split).

19

 Split up is increasing the number of shares circulated by breaking a piece

of stock to n shares. ( Jogiyanto , 2000). It can increase the number of
shares outstanding.
Split down is increasing the nominal value per share and reducing the
number of shares outstanding.
Meanwhile, according to NYSE (New York Stock Exchange) which is said by
the Mc. Gough, that stock split is divided into two kinds, which are:
Partial stock split
Partial stock split is extra the distribution of the outstanding shares of
25% or more but less than 100 % of the number of outstanding shares.
Full stock split
Full stock split is an additional distribution outstanding shares of 100 %
or more of the old number of shares outstanding.
2.3.3 The Reason Companies Do Stock Split
From the research that has been done by the financial experts to some
company managers who do stock split, it can be concluded various reasons the
managers of companies decided to do the stock-split is as following :
To return share price at the optimal trading range which can further add to
the attraction of investors to have such shares so as to make the liquid
shares to be traded.
To view that the company which done the stock split will increase the
attractiveness of the investor due to the low price of stocks.

20

 The lower stock price will increase the ability of such shares to be traded
at all times and will improve the market efficiency.
As a step to do merger and acquisition, the share price that relatively
comparable that would facilitate the negotiation of merger and acquisition
that made by the stock exchange.
2.3.4 Benefits of Stock Split
According to Fama (1993) benefits from the actions of stock split by the
company are as follows:
Stock prices which are lower provide the wide marketability and efficient
markets,
Shares will attract the small investors and it convert the lot owners of
restricted shares (odd lot) becomes the owner of a series of round lot.
The number of shareholders will increase, which means the addition of
market liquidity (relative easier and faster with securities traded at a
minimum price which is different from previous transactions).
In the announcement of stock split, there is a strong signal delivered to the
market that management continuously optimistic about the growth of the
company and an overview of the power project the company.
Rahmat (2009) states, The benefits of the policy would be obtained if the
stock split stock prices are relatively higher before the stock split compared with
other companies that are in the similar industry would turn out to be relatively
more normal ( not too low or high ) after the stock split
2.3.5 Theory in the Stock Split

21

According to Michael Hendrawijaya (2009) stated that in the stock split there
are several supporting theory that explain about it and it became the prediction
that has the relationship with the impact of stock split.
There are two theories as the literature to support the stock split which are:
Trading Range Theory
This theory said that the high stock price will cause reducing the active
trading stock to encourage the companies to do stock split. Leung (2005)
defines, If the price before stock split is high, so the split of share it
proves the truth of motives. Moreover, Harsono (2004) states, Doing the
stock split that made the stock price is not high so can be reached by the
investors and at the end will increase the liquidity of stock. It means the
companies do stock split because the price in the market is to high so it
encourages the companies to do it.
Signalling Theory
This theory explains that stock split will give the information to the
investors about the increasing of significant profit for the future.
According to Jogiyanto (2003) stated that Signalling theory has
encouraged companies to do stock split because there is the opportunity to
do investment, also showed the good prospect from the companies in the
future.

2.4 Abnormal Return

The component of return that is not the systematic influences (market-wide inf
luences). In other words, the abnormal returns is

the difference between

the

actual return and that is expected to result from market movements (normal return
22

). Jogiyanto (2000) states, Abnormal return or excess return is the excess of

return which actually happened to normal return, which is the normal returns is
the expected return (expected return by investors), so abnormal returns (abnormal
return) is the difference between the actual return occurred with required of return.
According to Brown and Manner (1985) stated that required of return can be
defined by using three models, which are:
1

Mean adjusted model

Assume the return expectation equal to the average of return
realization previously during estimation period.
E ( Rit ) =

R it
t

E(Rit) = Required of return of securities to i at time t

Rit

= Actual return securities to i at time t

= Estimation Period (before period event)

2 Market model
To determine market model there are two stages by using data estimation
and realization during the period use the model to estimate the expected
return in the window period. It can be formed by using the technique of
Ordinary Least Square regression equation.
E ( Rit ) =i+ i Rmt + it

of securities to i at time
i

E(Rit) = Required of return

estimation t

= Intercept, independent to Rmt

23

= Slope, systematic risk, dependent to Rmt

Rmt

= Market return

it

= Residual error of securities in the estimation

period to t
3

Market adjusted model

To estimate the return used the index of market return. In this model
return securities estimated the same as the market index return. Formula
to calculate Market Adjusted Model:

ARit=Rit Rmt

ARit

= Abnormal Return i on day t

Rit

= Actual return i on day t

Rmt

= Market return
Rmt=

( IHSG)t (IHSG )t1

IHSGt 1

2.5 Trading Volume Activity

Trading Volume Activity (TVA) is considered as a measurement to
measure the strength or weakness of the market. When TVA tend to increase while
the price has been declined, the market shown in the bad situation. According to
Jones, Charles P. (1986:375) defined that Trading Volume Activity calculation is
done by comparing the number of shares traded in the a given period by the total
number of shares outstanding of the company in the same period.
24

TVA=

the no of shares traded a given period

total no of outstanding shares

2.6 Previous Research Review

Research Title, Researcher

Research Variables

Analysis Data

(year)

Research
Result

MARKET REACTION TO STOCK

Abnormal Return,

SPLITS Empirical Evidence from the

Trading Volume Activity

One sample T-test

There the significant of

Trading Volume Activity

Nairobi Stock Exchange

and there is the positive

(Josiah Omollo Aduda, dan Chemarum

average from Abnormal

Caroline 201)
Pengaruh stock split: analisis likuiditas

Stock split, liquidity,

One sample T-test,

Return
There is no the

saham pada perusahaan go public di

trading volume activity,

Paired Sample T test,

significant difference for

Bursa Efek Indonesia dengan

growth, firm size

Wilcoxon signed ranks

all variables before and

test

after the announcement

memperhatikan pertumbuhan dan

ukuran perusahaan Slamet (Lestari dan
Eko Arief Sudaryono (2007))
Menendez dan Gomez ( 2003 )

of stock split
Earnings , dividends,

Paired sample T-test

There is the increasing

price

of stock price in the

shares, institutional

optimal trading range

ownership

after the announcement

of stock split

Leung,et al ( 2005

Abnormal return, stock

Paired sample T-test

There is the significant

price, trading activity,

difference of Abnormal

spread, depth

Return and Trading

Volume Activity before
and after the
announcement if stock
split

25

2.7 Theoretical Framework

Based on the background of study, the theoretical basis and the previous study, the
research can be drawn in theoretical framework on figure below:
Figure
Theoretical Framework

Phenomenon and
Problem
Company
Announced Stock
Split
Market
Reaction
(stock price)
Abnormal
Return

Trading
Volume
Activity

2.8 Articulating Hypothesis from Theoretical

Framework
Based on the background and the research objectives, then the hypothesis can be
made as follows:
1. The capital market react toward the announcement of stock split that
indicated by the Abnormal Return and Trading Volume Activity

26

2. There is the significant difference of Abnormal Return and Trading

Volume Activity before and after the announcement of stock split.

CHAPTER III
DATA PROCESSING METHOD

3.1 Research Method

The research method that used by the researcher is the quantitative
method. Quantitative analysis is the scientific approach to make the decision
making. It generates reliable population and generalizable data to establish causeand-effect relationship that used the statistical approach to obtain the result of the
research. Quantitative method uses the numbers to prove or disapprove a
hypothesized relationships and it also provides the connection between empirical
observation and mathematical expression of quantitative relationships.

3.2 Sampling Method

This research will discuss about the factors that will affect to the company
to announce the Stock Split to the market. The objective of this research is to
analyze the value of Abnormal Return and Trading Volume Activity around the
announcement of Stock Split. The research focused on Manufacture Company
which is listed in Indonesian Stock Exchange that announced the Stock Split.
Population on this research is manufacturing companies listed in
Indonesian for the year 2010-2014. The researcher used the purposive sampling
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technique. It means the companies which have been chosen are selected on the
basis of specified criteria. The objective of this technique is to obtain the adequate
information regarding the data that needed by the researcher in order to answer the
research problem and to prevent the error that will affect to the result later on. The
criteria that will implied in this research are:
a

The companies are categorized as a manufacture company

The companies are listed in the Indonesian Stock Exchange for five years
from 2010 until 2014 as the research will conducted

The companies have published the Financial Statement Report for the year
ended December 31, 2010 until December 31, 2014

The companies that have announced the stock split during 2010 until 2014

3.3 Research Data

The data used in this research is using the secondary data which collected
by using the library research and field research. The library research is done by
studying a variety of journal, literature books, and other sources of information
which are relevant with the topic of this research. The field research is the data
that prepared by the other party or the data that have already available. The data
that taken from field research such as, financial statement report that are available
in Indonesian Stock Exchange site (www.idx.com), data from the Indonesia
Capital Market Directory, and also yahoo finance site (http://finance.yahoo.com).
Data used in this research are yearly Financial Report at the end of each
period on 2010 2014 of the manufacturing company that have been selected

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using the implied criteria. The data would be obtained and analyzed by using the
statistical analytical tool program which called SPSS (Statistical Product and
Service Solution).

3.4 Research Variables

Research variables used in this study consisted from several independent
variables and the dependent variable. Variable free (independent variable) is
variables suspected to affect or be the cause of a change or the emergence of the
dependent variable. The dependent variable (variable dependent) is a variable that
is affected or which become due because of the independent variables.
The dependent variable and the independent variables in this study is as
follows:
1. Dependent Variables
The dependent variable in this study is the average abnormal return and
the volume trading activity.
2. Independent Variables
The independent variable was the announcement of stock split
3.4.1 Definition of Operational Variable
No.
1.

Variable
Abnormal

Definition
the difference

Return

between the

Measurement
ARit=Rit Rmt

actual return or
return , and
expected return

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2.

Expected
Return

The level of
expected profit

Rmt=

( IHSG)t (IHSG )t1

IHSGt 1

TVA=

the no of shares traded a given period

total no of outstanding shares

investors on
investment
embedded
3.

Trading

Measuring the

Volume

difference in the

Activity

number of trades
after and before
the stock split

3.5 Analysis Data

In this research the data that have been collected from library research
and field research will be analysed using the statistical method. There are some
phases of analysis that will be done in this research. The phase of the analysis is
Descriptive Statistic, Normality Test by using Kolmogrov-Smirnov Test, Test One
Sample t - Test and Paired Sample t Test.
3.5.1 Descriptive Statistic
Descriptive Statistic has it purpose to give description of data in research
variable used in this research. Descriptive statistic is more related with collecting
and summarizing data, along with presentation data, along with presentation of
data. There are two categories of statistic measurements that are used in this
research. Those two are usually used in decision making process.
1
2

Central Tendency such as mean, median, mode.

Dispersion, for example standard deviation

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3.5.2 Normality Test

Normality Test is used in order to determine whether the residual value of
dependent and independent variable that will be used in multiple regressions
equation has a normal distribution or not. Normally, multiple linear regressions
equation is stated normal if the distribution is normal or at least near normal. In
order do normality test, the distribution of data can be tested by histogram, normal
probity plot or Kolmogorov Smirnov.
In this research the normality test described Testing for normality is
expected to be able to determine the tool for the next test used in the study.
Normality Test Data using the Kolmogorov - Smirnov Test, by comparing
Significance asymptotic with = 0.05. Basic drawing conclusions Data is said to
be normally distributed if the asymptotic value its significance > 0.05 (Singgih
Santoso,2004:2012)

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Reference
Farinha, Jorge and Nuno Filipe Basilio, 2006, Stock Splits : Real Effects or Just
a Question of Maths? An Empirical Analysis of the Portuguese Case , Centro de
Estudos de Economia Industrial, do Trabalho e da Empresa, pp. 1 61.

Ikenberry, David L, et al, 1996, What Do Stock Splits Really Signal ? , Journal
of Financial And Quantitative Analysis, pp. 357 375.

Asquith, Paul, et al, 1989, Earnings and Stock Splits , The Accounting Review,
Pp. 387 403.

Bhattacharya, Upal and Amy Dittmar, 2001, Costless Versus Costly Signalling :
Theory and Evidence from Share Repurchases .

Leung, Tak Yan, et al, 2005, Do Stock Splits Really Signal ? , pp. 1 33.
Jogiyanto, 1998, Teori Portofolio dan Analisis Investasi, BPFE Yogyakarta, edisi
Pertama, Yogyakarta.

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