Stock splits are all the rage on Wall Street

Which would you prefer, a dollar bill or four quarters. The question does not have a correct answer. You have the same amount of money in either case. This principle also applies to stock splits. In stock splits, the total value of a stockholder’s stake in a company does not change.

This is the time-honored wisdom that’s taught in finance classes at universities across the country. Splits are still used by companies occasionally as a marketing tactic. Splits have fallen out of fashion in recent years. However, there is a new wave that involves big names like Alphabet and Amazon.

Analysts and commentators are trying to find reasons why corporations think splitting is a good idea. Splits are one possible explanation. This is because splits fall within the “corporate body language” umbrella, which refers to unspoken signals companies send to the markets. A split could indicate that a company expects its share price will rise quickly to its pre-split price.

Another common wisdom states that stock splits are sometimes done by companies to appeal to retail investors. They may find it easier to buy shares for $10 rather than $100. GameStop has benefited from small investors’ interest over its meme stock for the past 18 months. This helped it to avoid going under. Last month, the video-game retailer gave notice of its intention to increase its share count from 300 million to one billion. This was followed by an immediate 15% rise in its stock price.

Matt Levine, a Bloomberg columnist, has a complex theory about why splits are so popular. The idea behind stock splits is that retail investors can purchase options contracts easier, which in turn can drive up stock prices. This means that a stock split can reduce the price of shares, which makes it more likely that the stock can “memeify”, for want of a better term. This theory may be behind Tesla’s recent stock splittings, which were led by Elon Musk.

Corporate governance experts might be interested in Shopify’s stock splits. Canadian e-commerce firm Shopify announced earlier this month that it would like to do a 10-for-1 split of its stock. The company added a “founder share” to Tobias Lutke, the CEO, to make it more interesting.

Lutke would have 40% of the total voting power among Shopify shareholders. Robert Ashe, who is a member on Shopify’s board, stated that Lutke was “key to supporting and executing Shopify’s strategic vision” and that the proposal ensured his interests were aligned with long term shareholder value creation.

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