ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -Stock splits are generally done when the stock price of a company has risen so high that it might become an impediment to new investors. Therefore, a split is often the result of growth or the prospects of future growth, and it’s a positive signal.

Detailed explanation-2: -The prime intention of a stock split is to improve the liquidity in the stock, and thereby make it more affordable for investors. Companies resort to stock split when they realise that the price of their shares are either too steep or are beyond the price levels of peer companies.

Detailed explanation-3: -A stock split is a corporate action, where a company splits its shares into multiple new ones. Split shares neither add any new value, nor dilute the ownership stake of the shareholders. However, what they do is increase the number of shares of the company.

Detailed explanation-4: -Stock splits divide a company’s shares into more shares, which in turn lowers a share’s price and increases the number of shares available.

Detailed explanation-5: -The stock dividend increases the number of shares outstanding, just as a stock split does. With all other things remaining the same, the stock price will fall. Therefore, a stock dividend and a stock split both dilute the stock’s price.