Does a stock split provide an increase in wealth for a shareholder? If yes, how? if no, why not ?
Does a stock split provide an increase in wealth for a shareholder? If yes, how? if no, why not ?
Homework Answers
Stock split does not provide an increase in wealth for shareholders. It only provide increase in number of shares held. When there is stock split, one stock is split in some ratio. When stock split happens, share price decrease as a result. So Net wealth of shareholder remains the same.
Like 1 share price is $10. If it is split into 2 shares, Market price becomes 10*1/2= $5. Number of shares is 2. So wealth is 2*5=$10.
Ultimately the wealth is same.
So stock split does not provide increase in wealth of a shareholder
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