Reverse stock split

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Reverse stock split

A proportionate decrease in the number of shares, but not the total value of shares of stock held by shareholders. Shareholders maintain the same percentage of equity as before the split. For example, a 1-for-3 split would result in stockholders owning one share for every three shares owned before the split. After the reverse split, the firm's stock price is, in this example, three times the pre-reverse split price. A firm generally institutes a reverse split to boost its stock's market price. Some think this supposedly attracts investors.
Copyright © 2012, Campbell R. Harvey. All Rights Reserved.

Reverse Stock Split

The act of a publicly-traded company reducing the number of outstanding shares while maintaining the same market capitalization. In other words, a company engages in a reverse stock split in order to increase its share price. For example, a company with a share price of $1.50 may cut its number of shares in half so that the price goes to $3. Companies only conduct a reverse stock split if it desires to boost its share price when it is unable to do so by other means. Some companies consider reverse stock splits a last resort to avoid delisting from the exchange as the result of a share price that is too low.
Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved

reverse stock split

A proportionate reduction in the shares of stock held by shareholders. For example, a one-for-four split would result in stockholders owning one share for every four shares owned prior to the split. A reverse stock split has no effect on a firm's financial and operational performance and is often designed only to boost the market price of the stock so it won't be delisted from trading on an exchange that imposes a minimum share price requirement. Also called split down. Compare split.
Wall Street Words: An A to Z Guide to Investment Terms for Today's Investor by David L. Scott. Copyright © 2003 by Houghton Mifflin Company. Published by Houghton Mifflin Company. All rights reserved. All rights reserved.

Reverse stock split.

If a company's stock is trading at a low price, the company may decide to reduce the number of existing shares and increase their price by consolidating the shares.

For example, a 1-for-2 reverse stock split halves the number of existing shares and doubles the price. In that case, if you hold 100 shares of a stock selling at $5 a share, for a combined value of $500, in a 1-for-2 reverse stock split, you would own 50 shares valued at $10 a share, which would still give you a combined value of $500. Stocks may be reverse split 1-for-5, or 5-for-10, or in any ratio the company chooses.

Reverse splits are generally used to ensure that a stock will continue to meet listing requirements on the market where it is traded or to encourage purchases by institutional investors, who may not buy stocks priced below a specific point.

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References in periodicals archive ?
Credit Suisse AG has announced that it plans to implement a 1-for-10 reverse split of UGLD, its VelocityShares 3x Long Gold ETNs, and USLV, its VelocityShares 3x Long Silver ETNs, the company said.
In particular, we examine whether the number of institutional investors and the percentage of shares that are held by institutional investors increase after reverse splits. We also examine whether changes in institutional holdings that result from reverse splits have any effect on shareholder wealth.
Reverse splits help remove the penny stock image for low-priced stocks, making them more acceptable to institutional investors.
We employ an empirical methodology that combines the difference-in-difference approach and the propensity score matching technique to measure the effect of reverse splits on institutional holdings using a control sample of non-reverse-split firms.
Reverse splits are unusual events in which a firm substitutes one share for multiple shares without any changes in total market capitalization of the stock.
Han (1995) examines why firms would employ reverse splits when they adversely affect shareholders.
Woolridge and Chambers (1983) report that stock returns decrease on the announcement dates as well as ex-date of reverse splits. Spudeck and Moyer (1985) argue that "reverse splits appear to be better characterized as a strong signal to the marketplace of management's lack of confidence in future stock price increases resulting from earnings improvement." They also show that trading volume declined significantly in the following days after the announcement of the reverse splits.
Table I presents descriptive statistics for reverse splits. Panel A shows the distribution by year.
Panel B shows that when grouped by trading venue, 1,254 reverse splits (77.8%) take place on the Nasdaq, while the NYSE and Amex account for 178 (11%) and 180 (11.2%), respectively.
Each reverse split is expected each expected to be effective as of September 10, 2015.
The reverse splits will affect the trading denominations of these ETNs but it will not have any effect on the principal amount of the underlying notes, except in the cases of "partial ETNs."
The reverse splits will be effective at the open of trading on August 30, 2013 and these ETNs will begin trading on the NYSE Arca on a reverse split-adjusted basis on such date.