Abstract: This paper utilizes firms' stock splits driven by sentiment as the research setting to provide sufficient evidence on "investors' irrational preference and corporate catering". Specifically, we obtain threefold evidence:(1) Portfolio returns of longing low price stocks and shorting high price stocks are significantly and positively associated with sentiment, indicating that irrational preference of low-price stocks has significant price impact; (2) The propensity of stock splits is higher when investor sentiment is higher, and the association is stronger when the pre-split price is higher; (3) The market timing association between irrational preference and stock splits becomes stronger when insiders have strong incentives to boost stock price. Overall, our evidence illustrates that firms will conduct market timing stock splits to cater to investors' irrational preference for low price stocks.

Key words: catering, irrational preference, sentiment, stock splits