Question

How do stock-splits increase shareholder value?

Answer 1

A stock split is a corporate equity transaction that increases the number of shares outstanding while proportionally reducing the value per share.

The reduced stock price, because of the split, may make the stock look more attractive despite the increased no. of outstanding shares. If the more-affordable price excites investor interest, they’ll drive up the market price per share, enriching those who already own the stock. Many investors view a stock split as a positive signal by management that the company’s future prospects look good and bid up the shares accordingly. Stock splits help make shares more affordable to small investors and provides greater marketability and liquidity in the market.