Split or unfolding of shares: what it is – Dictionary of Economics

split concept

‘Split’ is an English word that has the sense of dividing, dividing. In the stock market context, when it is said that a company has carried out a ‘split’, it is referring to the fact that said company has carried out the splitting of the number of its shares, in a certain proportion. In a ‘split’, the company’s share capital does not vary, the number of shares is simply increased, which means that the unit face value and therefore its price on the stock market are reduced in the established proportion.

For example, the company ABC carried out a split of its shares in three, or what is the same, it made a ‘split’ in proportion 3 x 1. Before carrying out the ‘split’, the price of ABC shares was 3 euros, so that after carrying out the ‘split’ the price became 1 euro.

The purpose of this operation is to provide greater liquidity to the company’s securities, improve trading volumes and reduce the value of the shares on the market; that is, there is an increase in the fractionability of the shareholder’s investment. There are several reasons for carrying out ‘splits’, for example, to reduce the unit price of the share because it is very high (which does not have to mean that it is expensive) and to facilitate the entry of small investors; increase the total number of shares and thus facilitate the division of the company’s shareholding (as a security measure, to hinder an unwanted purchase or control of the company), etc.

It should be noted that a ‘split’ has a neutral effect for the shareholder of the company that carries it out, since for the shareholders it is the same to have 200 shares of the ABC company of 3 euros each, than to have 600 shares of 1 euro each a. In both cases the total value of your portfolio will be 600 euros.

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Some societies are interested in the opposite operation: to see.

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Xavier Puig. Doctor in Business Administration and Management and director of the Banking and Finance programs at UPF Barcelona School of Management.

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