1.1.12.6 Stock Splits

A stock split increases the total number of shares outstanding without changing the total market value of shares. The companies usually issue stock splits if the price of the stock is too high and is not affordable for the common investor. Essentially, the stock split increases the liquidity of the stock among common investors.

For example, in a 2-for-1 stock split, a holder of 100 shares IJK Corporation common stock receives an additional 100 shares usually in book-entry form, although investors can request a stock certificate). If the price of IJK was $144 just before the split, it is $72 right after it. The nominal value of the stock comes down by half in the above example after the split.