New York - Companies generally split stock when the stock has reached a price that individual investors are often reluctant to buy a full lot or 100 shares because it costs so much. Corporations generally split their stocks to lower the price and stimulate trading.
When a stock is split, there are more shares available, but the total market value of the company stays the same. For instance, after a stock splits, if you owned 100 shares of stock at $50 per share you would own 200 shares at $25 per share. In effect, a stock split is no different than getting four quarters for a dollar bill. When your stock splits, you should do the following:
If you maintain your investments in a brokerage account - your additional shares should be delivered directly to your account by your broker. All you need to do is ensure that on your next statement you properly get credited for the total amount of shares that you have. If not, call your broker immediately.
- If you maintain your stock certificates in your possession - you should be sent additional shares directly by the Company’s transfer agent. These agents maintain shareholder lists and should automatically send you them within a few days after the date the stock is effective. If you do not receive your shares within 7 days of the effective date, we recommend that you contact your company’s transfer agent immediately or contact the company’s stockholder public relations department.
Many academicians believe that there is no fundamental difference between a pre- and post-split stocks. The reasoning is that the total market value of the company is the same. We believe that stock prices generally rise after a stock split simply because new investors are attracted to it and are able to make round lot purchases.
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