Stock Split
A stock split is a corporate action in which a company increases the number of its outstanding shares by issuing more shares to current shareholders, thereby reducing the price per share. A stock split does not change the company's overall market capitalization or the total value of a shareholder's holdings; it merely reduces the price per share while increasing the number of shares held by each shareholder. For example, in a 2-for-1 stock split, each share held by a shareholder is split into two shares, and the price of each share is halved. Stock splits are typically undertaken when a company's share price has become relatively high, making the shares more affordable and attractive to investors.
Definition: A stock split is a process where a company increases the number of its outstanding shares while proportionally reducing the price per share to enhance the stock's liquidity and attractiveness. A stock split does not change the company's total market capitalization or the total value of shareholders' holdings; it merely lowers the par value per share while increasing the number of shares held by shareholders. For example, in a 2:1 stock split, each share held by a shareholder is split into two shares, and the price per share is halved. Stock splits are typically conducted when a company's stock price is high, making it more accessible for investors to buy and trade.
Origin: The concept of stock splits originated in the early 20th century when some companies found their stock prices too high, making it difficult for ordinary investors to purchase shares. To increase the liquidity and attractiveness of their stocks, companies began adopting stock splits. Over time, stock splits have become a common corporate financial strategy, especially during booming stock market periods.
Categories and Characteristics: Stock splits are mainly divided into forward splits and reverse splits. Forward splits (e.g., 2:1, 3:1) involve splitting each share into multiple shares, reducing the price per share; reverse splits (e.g., 1:2, 1:3) involve combining multiple shares into one, increasing the price per share. Forward splits are typically used when stock prices are high to increase liquidity, while reverse splits are used when stock prices are too low to avoid being perceived as 'penny stocks.'
Specific Cases: 1. Apple Inc. conducted a 7:1 stock split in 2014, reducing the price per share from about $645 to $92, making it more accessible for ordinary investors. 2. Tesla Inc. conducted a 5:1 stock split in 2020, reducing the price per share from about $2200 to $440, attracting more investors.
Common Questions: 1. Will a stock split affect my investment value? No, a stock split does not change the company's total market capitalization or the total value of shareholders' holdings. 2. Why do companies conduct stock splits? Mainly to increase the stock's liquidity and attractiveness, making it more accessible for investors to buy and trade.
