Kaplan Securities Industry Essentials (SIE) Practice Test

A stock split is an action taken by a company to divide its existing shares into multiple shares, which increases the number of shares outstanding while maintaining the overall market capitalization. This process does not change the total value of the company, but it reduces the price per share, making the shares more affordable and potentially more attractive to a larger number of investors. In a stock split, the company's total equity value remains the same; for example, if a company splits its shares in a 2-for-1 split, shareholders will receive an additional share for each share they currently own, but the price per share will be halved. This can enhance liquidity, as more shares on the market make it easier for investors to buy and sell them. This understanding of stock splits is essential for grasping how companies manage their stock prices and shares in their efforts to improve market conditions for their investors.