*Some intricacies about Stock split and Reverse split
Why do companies hold stock split shares?
1. Company’s generally go in for stock split when the share price becomes too high and if so the scrip is considered to be out of reach for small/medium investors.
What is high is subjective- the belief is that managers have a feel of ‘popular price range’ the range in which the stock be created to attract potential investors.
2. Investors normally prefer to trade in round lots Round lots- 100 shares Old lots <100 shares At very high prices small/ medium investors may be unable to afford round lots.
Why do companys go in for reverse spilt?
Exchanges like NYSE discorages the listing of securities which are consistently trading at lower prices as low prices have tendency to attract trades with unrealistic expectations, who coluld get their fingers burnt.
*Thus Stock splits are similar to bonus shares from the standpoint of impact on the share price as they lead to reduction in market price of shares, Whereas a reverse spilt will usually cause the market price of a share to rise which will reduce the possibility of investor being lured into a penny stock trap.
Comments
Thanx for sharing insights about Itc.