Why do companies split their stock?

Answer 1

To lower the high stock prices, so that more people will buy...that simple.

Answer 2

To make their stock more marketable for smaller investors.

Let's say the stock came to the market at 30 dollar a share. (called par value). Many investors bought 100 or even 1000 shares at this price.

The company did well and the stock went up 10 fold. Now it's 300 dollars.

Again, few years later, it goes up 10 folds. Now, a share of stock is 3000 dollars. How many small investors do you think, can buy 100 shares of this? That's 300K dollars!

Companies want to make their stock more marketable to more people, so the trading can take place. They are creating the market for their stocks.

That is why companies split their stocks.

In this example, the company can do 4 to 1 split every few years and keep the price lower.

If you have 100 stocks at value 100 dollars each, and the stock splits 4 to 1, now you have 400 stocks at 25 dollars each. The total value of the stock doesn't change, but now, you can buy more easily and you can sell yours easily because more people can afford them.

Make sense?

Answer 3

L. is right - when a stock's price gets really high, it can be a psychological barrier to buying, plus people usually buy in lots of 100 (100 shares at a time). If my share price is $150 and you want to buy 100 shares, you would need to spend $15,000. If I split the stock in 3, you could buy 100 shares at $50 each and only spend $5000. You would own a smaller share of the total shares available, since if the company used to have 1 million shares, they would now have 3 million total shares after a three way split.

Answer 4

To reduce the price per share into a more desirable buying range.

Answer 5

this is technique is used to make "correction" in the stock market and make the stock price low and this will incraese the dealing and make the liquidity and this mean......... market efficiency