Does a stock split really affect that stock's price?

You might be asking yourself right now, what exactly is a stock split? A stock split is basically the split of shares in a publicly traded company to give a shareholder more stock options without raising the stock's price. The most common stock split is called a two for one. While the stock is doubled, the price is adjusted, so the market cap stays the same. An example of a stock split would be say fifty shares of stock in a publicly traded company. The company sells each share of stock at fifty dollars each. The market cap is fifty shares times fifty dollars, which equals twenty-five hundred dollars. The company splits its stock two for one, and there is now totaling one hundred stocks. This means that now each shareholder has twice as many stocks as they had before. But what about the price? The price of each share is now adjusted to twenty five dollars, and the market cap changes to one hundred shares times the twenty five dollars dollars, and that now equals the same as it did before at twenty-five hundred dollars. Stock splits are usually allowed only when the company is doing well. The price per share will immediately adjust.

There is also the opposite of a stock split, called a reverse stock split. Reverse stock splits actually reduce the amount of shares, and raise the price of the stock. For example, if a person owns ten thousand shares of stock in a company, and it declares a reverse one in ten split, that person will now only own one thousand shares. The reverse split has no affect on the value of what the shareholders own. Companies think that splitting their stock will attract more investors when they believe the prices are to low. Reverse stock splitting can be a bad thing for the small investors, because they can become what is called "cashed out", and no longer be able to own the companies shares. Reverse stock splits can actually be done by a company's board of directors without any of their shareholders approval.
Some might claim that stocks splitting do lead to higher stock prices. These claims however do not have any research that shows these increases happen. These claims are most likely made because most stock splits are made after the increases in stock prices. In reality, the stock prices will go up regardless if a stock split is made or not. Some other reasons why people might think prices are affected because of splitting is purely psychological. Some investors might be inclined to purchase the stock before it splits, thinking that the split will increase the value, when in all actuality it stays the exact same. Some investors are also attracted to the lower share price, and the smaller investors will come in and buy up the available stock. When smaller investors take action such as this, there will most likely be a negative impact on the prices rather than the increases they are hoping for. Some companies only decide to split their stock if the price rises so high that they feel smaller investors will not be able to afford the stock. All companies are required by law to file reports with the Security and Exchange Commission when they declare stock splits. The company is also required to notify the stockholders of the changes. Before buying a company's stock, it may be a good idea to get on the Internet and do some research on that company. A company's website will most likely have the history of the stock splits and changes, and give you a good idea of how the company is doing.