SPLIT OF SHARES
A split of shares, commonly known as a
stock split, is a corporate action where a company increases the number of its
outstanding shares while proportionally decreasing the share price. The primary
goal of a stock split is to make shares more affordable for investors without
altering the company's overall market capitalisation. For instance, in a
2-for-1 stock split, shareholders receive two shares for each share held before
the split, effectively halving the share price. Stock splits are usually
implemented to enhance liquidity, broaden the shareholder base, and improve
market perception of the company's stock. A stock split does not impact the
company’s fundamental value or the total value of an investor’s holdings;
instead, it merely adjusts the number of shares and their nominal price.
Companies often resort to stock splits when their share prices rise
significantly, making them less accessible to small or retail investors. By reducing
the per-share price, companies can make their stock appear more affordable and
attractive, leading to increased trading activity and better market
participation. There are two main types of stock splits: a forward stock split
and a reverse stock split. In a forward split, the number of shares increases
and the share price decreases proportionally, while in a reverse split, the
number of shares decreases and the share price increases proportionally.