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

1

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

2

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.

3

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

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

4

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

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 company’s 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 company’s 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.

5

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

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

6

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

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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 student’s 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.

8

CHAPTER II

LITERATURE REVIEW

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

9

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:

10

1. Types of Capital Market

Primary Market

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.

2. 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

11

load the timing of the transaction agreement and the time of delivery

should be to do so requires a transfer of wealth–term certain time.

Options Market

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

12

investors to diversifying investments according to their risk

responsibilities and level of benefits they expect.

2.1.4 Capital Market Instruments

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

13

will has the right to get the income and the company’s wealth after deducting the

payment of all company’s liabilities”.

Griffin and Elbert (2002) define, “stock is the evidence of the company’s

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.

14

According to Kertonegoro (2001), there are three objectives of the investors

that buy stock/shares in the capital market, which are:

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

15

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.

b. 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.

c. 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

16

Income stocks are the stock of the company that can pay the

dividend higher than the average dividend from the previous period.

Growth stocks

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 macro-

economic 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.

17

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.

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 company’s 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

18

to levels that are either too high or are beyond the price levels similar companies

in their sector.

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).

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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.

The lower stock price will increase the ability of such shares to be traded

at all times and will improve the market efficiency.

20

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

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.

21

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

). 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

22

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¿t

¿

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

Rit = Actual return securities to – i at time t

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 )=αi+ βi Rmt+εit E(Rit) = Required of return of

securities to – i at time estimation t

αi = Intercept, independent to Rmt

βi = Slope, systematic risk, dependent to Rmt

Rmt = Market return

23

εit = 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)t−1

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.

TVA= the no of shares traded∈a given periodtotalno of outstanding shares

24

2.6 Previous Research Review

Research Title, Researcher

(year)

Research Variables Analysis Data Research

Result

MARKET REACTION TO STOCK

SPLITS Empirical Evidence from the

Nairobi Stock Exchange

(Josiah Omollo Aduda, dan Chemarum

Caroline 201)

Abnormal Return,

Trading Volume

Activity

One sample T-test There the significant of

Trading Volume

Activity and there is the

positive average from

Abnormal Return

Pengaruh stock split: analisis likuiditas

saham pada perusahaan go public di

Bursa Efek Indonesia dengan

memperhatikan pertumbuhan dan

ukuran perusahaan Slamet (Lestari dan

Eko Arief Sudaryono (2007))

Stock split, liquidity,

trading volume activity,

growth, firm size

One sample T-test,

Paired Sample T test,

Wilcoxon signed ranks

test

There is no the

significant difference for

all variables before and

after the announcement

of stock split

Menendez dan Gomez ( 2003 ) Earnings , dividends,

price

shares, institutional

ownership

Paired sample T-test There is the increasing

of stock price in the

optimal trading range

after the announcement

of stock split

Leung,et al ( 2005 Abnormal return, stock

price, trading activity,

spread, depth

Paired sample T-test There is the significant

difference of Abnormal

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

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

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

Volume Activity before and after the announcement of stock split.

26

Phenomenon and Problem

Company Announced Stock Split

Market Reaction(stock price)

Abnormal Return Trading Volume Activity

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 cause-

and-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

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

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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

b. The companies are listed in the Indonesian Stock Exchange for five years

from 2010 until 2014 as the research will conducted

c. The companies have published the Financial Statement Report for the year

ended December 31, 2010 until December 31, 2014

d. 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

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).

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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. Variable Definition Measurement

1. Abnormal

Return

the difference

between the

actual return or

return , and

expected return

ARit=Rit−Rmt

2. Expected

Return

The level of

expected profit

investors on

investment

embedded

Rmt=(IHSG )t−(IHSG)t−1

IHSGt−1

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3. Trading

Volume

Activity

Measuring the

difference in the

number of trades

after and before

the stock split

TVA= the no of shares traded∈a given periodtotalno of outstanding shares

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. Central Tendency such as mean, median, mode.

2. Dispersion, for example standard deviation

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

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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 α = 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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