We hypothesize that managers use stock splits to attract more uninformed trading so that market makers can provide liquidity services at lower costs, thereby increasing investors’ trading propensity and improving liquidity. We examine a large sample of stock splits and find that, consistent with our hypothesis, the incidence of no trading decreases and liquidity risk is lower following splits, implying a decline in latent trading costs and a reduced cost of equity capital. Further, split announcement returns are correlated with the improvements in both liquidity levels and liquidity risk. Our analysis suggests nontrivial economic benefits from liquidity improvements, with less liquid firms benefiting more from stock splits.

ABSTRACT Access to firms’ innovation outputs determines the extent of knowledge spillover that poses risk to innovation appropriability. We provide plausibly causal evidence that processing costs of financial disclosures, which inform users of the economic value of innovation, play a key role in firms’ management of knowledge spillover. We exploit an exogenous, randomly assigned, and staggered policy shock by the SEC that reduces processing costs of mandatory financial disclosures. In response, firms reduce patenting rates, with the effect concentrated among firms in more competitive industries and with lower costs of capital. Firms also reduce their patent disclosure quality. Our results suggest firms rely more on trade secrecy as their innovation property protection mechanism. Lower processing costs of financial disclosures affect neither innovation inputs nor voluntary disclosure practices. Our results show that firms strategically manage access to their innovation outputs through financial disclosures, patent disclosures, and trade secrecy to curb knowledge spillover. JEL Classifications: D23; G30; O31; O32; O34.