Gaming the Float: How Managers Respond to EPS-based Incentives

Table 6: Changes in Shares Outstanding: High Cost to Splitting
This table presents IV regression models of shares outstanding as a function of firm characteristics. In these specifications, Net Income
Error Volatility is instrumented for using exogenous changes in analyst coverage. Column presents the regression specification from table
5 and controls for high and low stock prices where High is defined as stocks above $80 and Low is defined as below $20. Columns 2 and 3
show show results for share changes due to splits for firms with above median illiquidity and below median illiquidity respectively.Shares
outstanding is measured as the total number of shares outstanding (1000’s) from CRSP at the end of the quarter. Net Income Error
volatility is the standard deviation of the the difference between actual earnings and median IBES forecast of earnings. Market to Book
is total market equity plus the book value of total debt divided by total assets. Operating income is defined as operating income before
interest and depreciation from Compustat at quarter end. Market Cap is the total market capitalization in millions at the quarter end.
Institutional ownership is percent ownership of all institutions. Return Volatility is the standard deviation of daily stock returns over
the prior 90 days. Annual Return is the past 12 month stock return.
(1) (2) (3)
∆ Shares ∆ Shares ∆ Shares
VARIABLES Full Sample High Illiquidity Low Illiquidity
∆ Net Income Volatility - Analyst Forecast t−1 4,796** -1,295 6,263**
(1,882) (4,037) (2,477)
∆ Market to Book t−1 204*** 21 482***
(60) (15) (119)
∆ Net Income t−1 301*** 27 446***
(110) (82) (159)
∆ Institutional Ownership t−1 280*** 43*** 561***
(43) (10) (88)
∆ Market Cap t−1 451*** 424*** 569***
(57) (51) (90)
∆ Annual Return t−1 -56 -27 -40
(61) (18) (155)
∆ Amihud t−1 5 -9 58,847
(16) (8) (59,775)
∆ Return Volatility t−1 118*** 14** 417***
(19) (6) (66)
High Price t−1 13,008*
(1,335)
Low Price t−1 -101
(244)
Constant -155 -87 2,924
(155) (381) (2,886)
Year Effects Y Y Y
Observations 280,067 146,010 134,048
Standard errors clustered by firm in parentheses
*** p