Why might companies choose to implement stock splits?

Why might companies choose to implement stock splits?

• A. To eliminate shareholders
• B. To keep the stock price in an optimal range
• C. To increase cash reserves
• D. To signal stock buybacks

Answer: (B)

Companies often implement stock splits primarily to keep the stock price in an optimal range. When the share price becomes too high, it can limit the ability of smaller investors to purchase shares, potentially decreasing liquidity and market interest in the stock. By splitting the stock, the company lowers the per-share price while maintaining the overall market capitalization. This action can make the shares more affordable and accessible to a broader range of investors, which can lead to increased trading volume and interest in the stock. As a result, it can enhance market liquidity and potentially contribute to a more stable trading environment. Opting for stock splits can be part of a broader strategy to maintain market attractiveness without changing the fundamental value of the company.

Companies often implement stock splits primarily to keep the stock price in an optimal range. When the share price becomes too high, it can limit the ability of smaller investors to purchase shares, potentially decreasing liquidity and market interest in the stock. By splitting the stock, the company lowers the per-share price while maintaining the overall market capitalization.

This action can make the shares more affordable and accessible to a broader range of investors, which can lead to increased trading volume and interest in the stock. As a result, it can enhance market liquidity and potentially contribute to a more stable trading environment. Opting for stock splits can be part of a broader strategy to maintain market attractiveness without changing the fundamental value of the company.