Stock Split

A stock split involves issuing new shares without receiving additional cash. In a stock split, each share is split into a more significant number – for example, in a 2-for-1 split, each original share results in 2 shares after the split. After a stock split, a company’s value is unchanged. However, it reduces the stock price. Also, the par value of the share is reduced.

A share split is achieved by dividing the existing share capital into a more significant number of shares with a lower nominal value per share. Splitting the nominal value of shares in this way will affect the market price. Psychologically, investors may view the share more favorably if the price has been brought down in this way.

One advantage of a stock split is that it reduces the market price, making it more affordable to potential investors. When the price for a share of stock gets too high, some investors may not want to purchase any shares because they cannot purchase a significant number of shares at one time or view the purchase as a substantial risk to their wealth. Therefore, after a stock split, the shares become more affordable.