1 Answer | Add Yours
Stock splits may eventually benefit the existing shareholders.
When a stock splits, each share holder gets two shares to replace each share previously held. But the new shares are at 1/2 the price of the old, so the cumulative value of the shares does not change. Therefore, there is no immediate benefit to the share holder.
Many investors perceive a stock split as a good sign because it indicates that the company is healthy. If enough people believe in the company and buy shares in the company after it splits, the existing share holders will benefit from a higher stock price.
Companies split stocks on the expectation of a rising market price. Other than this, there is not really any way in which share holders benefit from a stock split.
We’ve answered 319,849 questions. We can answer yours, too.Ask a question