Understanding Stock Splits: Impacts on Shareholder Value and Market Perception

Introduction

Stock splits are corporate actions that increase the number of outstanding shares while proportionally decreasing the share price, leaving the overall market capitalization unchanged. This report aims to explore the implications of stock splits on shareholder value and market perception. By examining the rationale behind stock splits, their immediate and long-term effects on stock performance, and how investors perceive these actions, this report endeavors to provide a comprehensive understanding of stock splits and their significance in financial markets.

Main Body

Rationale Behind Stock Splits

Companies typically execute stock splits to make their shares more accessible to a broader range of investors. When a company’s share price rises significantly, it may reach a point where it is perceived as too expensive for retail investors. A stock split reduces the price per share, making it more attractive to potential buyers without altering the company’s fundame