Stock Split

Stock Split, an increase or decrease in the number of shares of stock issued by a corporation. When corporations issue a stock split, they change the value of the stock in proportion to the change in the number of shares so that the total value of the stock remains the same.
Many stock splits are 2 for 1—that is, investors get two shares of stock for each share they own.

For example, an investor who held 100 shares of General Electric with a value of $120 a share prior to a 2 for 1 stock split, would hold 200 shares with a value of $60 a share after the split. Companies sometimes issue stock splits to lower the price of their stock if they believe that a lower price will entice more investors to buy the stock.

A corporation may also issue a reverse stock split in which the number of shares is cut in half, but the value of each share is doubled. In a reverse split, 100 shares of stock with a value of $5 a share would become 50 shares with a par value of $10 a share.

Reverse stock splits raise the price of the stock and are most common with low priced stocks. A company might make a reverse split to increase the price per share to meet the requirements for listing the stock on a stock exchange.

Splits and reverse splits may be made in any amount. Occasionally, a company will make splits in the amount of 3 for 1, 4 for 1, or even 10 for 1.