Stock splitting

A stock split increases the number of a corporation’s issued shares by dividing each existing share. Crucially, the stock’s market capitalisation remains the same, and the value of the stock is the same, but there are more shares available.

For example, with a 2-for-1 stock split, each shareholder receives an additional share for each share held, but the value of each share is reduced by half: two shares now equal the original value of one share before the split.

The most logical reason for stock splitting is to increase a stock’s liquidity. And on a psychological level, as the price of the stock grows, some investors may feel it is too expensive to buy. A split can bring the share price down to a more attractive level for investors.

Merryn

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