What are Stock Splits?

A stock split is a corporate action in which a company divides its existing shares into multiple new shares to boost the liquidity of the stock. This means that the number of shares outstanding increases, while the value of each individual share decreases proportionally.

For example, if a company declares a 2-for-1 stock split, it would double the number of shares outstanding and halve the value of each share.

Stock splits are typically done by companies with high stock prices in order to make their shares more affordable and accessible to a wider range of investors. However, it's important to note that the value of an investor's total holding in the company remains the same after a stock split.

Using the same 2-for-1 example, if an investor owns 100 shares of a company valued at $100 each and the company declares a 2-for-1 stock split, the investor would end up with 200 shares worth $50 each, but the total value of their holding would still be $10,000.

Stock splits can also have an impact on a company's stock price. In some cases, the announcement of a stock split can lead to a temporary increase in the stock price as it may be seen as a sign of the company's confidence in its growth prospects. On the other hand, if a stock split is accompanied by negative news or a decline in the company's financial performance, it could potentially lead to a decrease in the stock price.

However, stock splits are generally considered to be a neutral event and do not inherently have any effect on a company's financial performance or value.

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