Benefits of Stock Split

Stock split refers to increase in number of shares of a company which are outstanding in the open market in the hands of public. Stock split results in increase in number of shares but decrease in share price which results in market capitalization keeping remain the same as it was before the stock split. Given below are some of the advantages of stock split –

  1. It results in share price coming down which in turn results in stock price getting attractive for retail investors. Consider an example where there are 2 companies A and B having same fundamentals and if the price of A is $100 and B is $10 than a normal would buy 1000 shares of A rather than buying 100 shares of company B.
  2. It also increases the liquidity for a stock because after stock split number of shares which are there in open market increases and It leads to better price discovery because in market liquidity plays a key role when it comes to discovery of correct price.
  3. In the minds of investors it gives them immense satisfaction because after the split the number of shares in their online trading account becomes double or even triple. Though there is no rationality behind it but market and market participants does not always act rationally.
  4. Stock split can also result in the increase in the stock price, which many happens normally after the announcement is made.
0 comments… add one

Leave a Comment


Related pages


cross rate formulaexamples of semi durable goodsthe income and substitution effects of a price change explainexamples of consumer durablesjournal entry for closing stockadvantages and disadvantages of traditional economysecuritizing accounts receivableadvantages of barter tradevertical horizontal and conglomerate mergersfull form of demat accountinferior goods examplesglobal warming advantages and disadvantageshindi meaning of compensatewhat are the differences between horizontal analysis and vertical analysisexamples of direct taxdisadvantages of exportingdisadvantages of financial statement analysishorizontal & vertical analysisadvantages of a debit cardconservatism principle accountingpros and cons of mergers and acquisitionsfull form of cpidifficulties of barter systemimplicit explicit costwhat are the disadvantages of globalisationnormal good definition economicsdiscounting of bill of exchangedefine securitizedbreak even analysis advantages and disadvantagessales promotion advantages and disadvantagescentrally planned economy advantagesjain irrigation dvr share priceinfosys kpolifo method advantages and disadvantagescarriage inwards and outwardswhat is a horizontal mergerdisadvantages of job order costingadvantages of decentralizationwhat is conglomerate mergeradvantages of mergersfeatures of urbanisationnon diversifiable riskstrengths and weaknesses of market economyunitary elastic demanddisadvantages of exportingpricing strategies gcseadvantages of a debenturedisadvantages of centrally planned economynet worth calculation of a companyconglomerate integrationmarginal costing formatdifficulties of barter systemexamples of semi durable goodsdefine unsystematicconsignee meanseffects of advertising in monopolistic competitionmarginal costing formatadvantages of decentralized organizationaccounting relevant costprepaid expense entrywhat is systematic risk and unsystematic riskcomplementary goodsaccrued income meaningexample of horizontal diversificationconglomerate organizationadvantages of a planned economywhat is the difference between systematic and unsystematic riskdifference between equity shares and debenturesunearned rent revenue journal entryadvantages and disadvantages of decentralised structurewho is a consignee and consignorconsignee consignor meaningadvantages and disadvantages of stock marketadvantages of unrelated diversificationexamples of elastic demand goodsactivity based budgeting disadvantages