Stock Split

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Imported from previous forum

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Hi All,

I was just goin through some stuff on STOCK SPLIT;

The exact reasons for splitting a stock are not very clear to me.

So I want to know what are the strategic reasons a company
goes for a stock split?

plz help me with as much detail as possible since am new to
the financial domain.

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[ original email was from Ambar Arasan - ambar.arasan@gs.com ]
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Hi All,

I was just goin through some stuff on STOCK SPLIT;

The exact reasons for splitting a stock are not very clear to me.

So I want to know what are the strategic reasons a company goes for a
stock split?

plz help me with as much detail as possible since am new to the
financial domain.

Hi,
Hey, excellent question. A few reasons.
First, as a stock price skyrockets, some people will be psychologically unwilling to pay that “high price” so a stock split brings the shares down to a more “attractive” level. Again, the intrinsic value has NOT changed, but the psychological effects may help the stock.
Second, a stock split generally occurs in the face of new highs for the stock. Thus, it’s an event dripping with positive connotations and associations. . . it’s makes bulls snort and roar to suddenly have “twice as many shares” as they started with, for example. Third, and final, with lower-priced shares, a stock’s LIQUIDITY (FAQ topic, see LIQUIDITY) increases, often reducing the BID/ASK SPREAD (FAQ topic, see BID/ASK SPREAD) and making it easier to trade. This is always good.