Also known as a bonus share or bonus issue.
This divides each of the existing shares thereby lowering the price per share.
When a company's stock price gets too high companies may split-the-stock (i.e. issue new shares to existing shareholders).
A company announcing a 2-for-1 stock split will distribute an additional share for every existing share, so the total number of shares in issue will double. A stock split does not affect a company's market capitalization.
This allows more investors to invest in the stock at a price they can afford, and generally improves liquidity.
Stock prices will often rise when a stock split is announced since the split allows more investors to invest at a price they can afford.
The market will adjust the price on the day the action is implemented.
The greater liquidity and higher demand on the share will typically drive the share price up, thereby increasing the company's market capitalization.
For example if a company with a stock price of $600 announces a three for one stock split
This means that instead of holding one stock at a price of $600 I will own three stocks valued at $200 each.
This is when the shares are split. For example every share (with nominal £1) is replaced with two shares (with nominal 50p)
Often if a share price has risen too high, the market may feel that the current high share price is inconvenient and deters many small investors / shareholders from buying more shares.
In theory an investor is happier with 100 shares at £20 rather than 10 shares at £200.
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