Why may a stock split not be of great value to existing shareholders?

Answer 1

There is no fundamental reason why a stock split is good. When a stock splits the inherent value of the company doesn't change, the price of the new shares just adjusts by the split ratio.

Higher expenses can arise due to tracking a larger number of shares.

That said, usually a stock will split after a decent sized increase in share price. There is some psychological value in having the value of a share of stock being affordable to a retail level investor (hmmm, I can buy 20 shares of a $50 stock, but only 10 shares of a $100 stock for my $1000). Again, psychologically, companies with stocks that split are growing and that might help sentiment, but it needs to have fundamental support...

Answer 2

Yes to "rush is a band". Fundamentally, a stock split is window dressing. It doesn't effect how you buy or sell the shares, or your fees payable on trading the stock. Implementing a stock split is not that expensive, relatively (especially if we are talking Fortune 500 companies).

Companies split because of the psychological impact of a $ amount in the share price to ordinary investors who feel that a $20 stock is "more expensive" than a $10 stock. Splits do not change the fundamentals, the valuation or the prospects of a company. It just allows more retail investors to buy shares because they repsresent smaller and smaller pieces of the company.

For example, if you own one $1 share of a company worth $100, you own $1 or value. If the stock splits 2:1, you own two shares of $0.50 stock worth $100, or $1 of value.

If you look at a Berkshire Hathaway B share, each one costs over $10,000. Normal investors would probably consider this too expensive, so if the stock split, it would allow a greater pool of investors to buy shares.

Answer 3

in addition to what Rush said...

it is also not great in a macro sense as there's a theory that it decreases liquidity...
say presplit you had 1000 shares and now you have 2000 shares.
your % ownership of the company hasn't changed... the value of the stock hasn;t changed ... but it will now cost more to sell your position.

small added charge to a retail investor ... but is of greater expense to Institutions as they may own millions of shares that are now more expensive to liquidate....

this isn't bad or good... just a slight added expense to you

Answer 4

It costs money for the corporation to perform the split, which increases expenses and reduces profits.

The tax burden on corporations (depending on the state) is often based on the number of outstanding shares, which in some cases will increase taxes.

I think, (but am not sure), that the SEC fees when you sell your stock is based on the # of shares sold. So it might cost more to sell the stock.

Answer 5

the price may decrease after the split and leave you with the same monetary value of stock.