Split

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Split

Sometimes companies split their outstanding shares into more shares. If a company with 1 million shares executes a two-for-one split, the company would have 2 million shares. An investor with 100 shares before the split would hold 200 shares after the split. The investor's percentage of equity in the company remains the same, and the share price of the stock owned is one-half the price of the stock on the day prior to the split.

Split

The act of a publicly-traded company increasing the number of outstanding shares, while maintaining the same market capitalization. In other words, a company engages in a stock split in order to decrease its share price by increasing the number of shares available. Current holders of the stock are given more shares so that they maintain the same percentage of ownership in the company. For example, a company with a share price of $400 may double the number of shares so that the share price drops to $200. Companies conduct stock splits for a number of reasons; one possible reason is to keep its shares affordable. See also: Last Split, Split Ratio, Split Adjusted.

split

A proportionate increase in the number of shares of outstanding stock without a corresponding increase in assets or in funds available, as would be the case in a new stock offering or in an acquisition that uses stock as payment. Essentially, a firm splits its stock to reduce the market price and make the shares attractive to a larger pool of investors, although it is questionable if the firm's stockholders actually benefit from a split because share prices are reduced proportionately with the increase in shares outstanding. A 4-for-1 split would result in an owner of 100 shares receiving 300 additional shares, or an after-split total of 4 shares for every 1 share owned before the split. Also called split up, stock split. Compare reverse stock split.
Case Study In April 1996, directors of the Coca-Cola Company approved a 2-for-1 split, the firm's fourth stock split in a decade. The announcement stated that trading in the split shares would begin on May 13, approximately a month after the split was announced. Shares of the firm's common stock fell by $1.25 with the announcement. Shareholders of Coca-Cola could expect that the stock price would decrease by half when the securities commenced trading on a post-split basis. A stock split results in additional shares of ownership without a corresponding change in total income or assets. All per-share financial statistics decline in proportion to the size of the split. Thus, a 2-for-1 split results in twice the outstanding shares, each with half the book value and half the earnings as prior to the split. In general, stock splits create more paper but not more value for shareholders, because the market value of the stock can be expected to fall in proportion to the size of the split. A stock trading at $60 per share just prior to a 4-for-1 split should trade at approximately $15 per share following the split. Academic research investigating how or when investors can profitably invest in stock split situations offers mixed results. Some research indicates that trading stock just prior to a split may create unusual profit opportunities. One well-known study finds that unusual returns can be earned in the days before and after the announcement, but not on the date of the actual split. Other research indicates investors will earn unusually low returns by investing in stock in the year or two following a split. This variability of results means the individual investors cannot expect to earn unusual profits by purchasing a stock just prior to or following a split. By the time a split occurs, any unusual profit opportunity has already passed.
References in periodicals archive ?
[PH.sub.n] = Promoters' holding proportion in the split company during the quarter of the splits.
Hence, the activity and the number of small investors will increase after the split. Lamourexu and Poon (1987) first give the evidence in favour of increase of number of small investors after ex splits.
(1984) document positive abnormal returns of 3.3% over the two days event period surrounding the split announcements.
The method developed by Sanders and Robbins (1991) is used to test for mean and variance changes as a result of the split. Weighted prediction errors and the associated Z-statistic and t-statistic are calculated.
Because long-term variance changes are evidence of changed information flows, I test them using intervals of 100 and 250 days before and after the split ex date.
Analyst coverage reporting frequency is monthly, so the number of analysts is the monthly average during a nine-month period that ends in the fourth month preceding the split ex date month for the pre-split period and that begins in the fourth month following the split ex date month for the post-split period.
We find that the difference in the mean number of institutions owning shares between the stock split sample and the matched sample six months before the split is not statistically significant.
The chance exists that a stock split announcement could cause shareholders to change their ownership status by taking shares that were personally registered before the split to being held in street name at a brokerage firm after the split.
The result holds for subsamples of firms having no other confounding announcements when the split becomes public, for firms with no prior dividends and for firms with no subsequent dividend increases.
485-488~ in which specialists' inventory practices lead to an above average number of trades at bid prices on the day preceding the split and result in apparent abnormal returns on the ex-day that merely represent movement from bid to ask prices.
The matched fund for the split year (Year 0) is used as the match for the pre-split period.
Of the funds, 80% have existed for at least five years before the split. The mean (median) net assets under management at the calendar yearend prior to the split is $227 million ($76 million).