Definition Of

Stock splits

A stock split, like a stock dividend, involves issuance of additional shares to stock holders according to their percentage ownership. A stock split results in a reduction in the par or stated value per share. The purpose of a stock split is to increase the marketability of the stock by lowering its market value per share.

The effect of a split on market value is generally inversely proportional to the size of the split. For example, after a recent 2-for-1 stock split, the market value of Nike’s stock fell from $111 to approximately $55. The lower market value stimulated market activity, and within one year the stock was trading above $100 again.

In a stock split, the number of shares increases in the same proportion that par or stated value per share decreases. A stock split changes the par value per share but does not affect any balances in stockholders’ equity.

Stock split is a subdivision of shares already issued, done to decrease a stock’s high market price to an amount that more investors can afford to pay.