What Is a Stock Split?

Companies have used stock splits to increase liquidity since 1927. Here's a brief explainer of the practice.

A common practice for publicly traded companies is to, on occasion, do a stock split. The practice first began in 1927 and has received widespread use since then.

A stock split is when a company increases the number of its shares by dividing or “splitting” shares. The Board of Directors makes the decision to split the stock, which can be any ratio. The most common are 2:1 or 3:1. Splitting stock doesn’t increase the value of the company. Rather, the price per share is reduced proportionally to maintain the existing market cap.

Companies may choose to do a stock split to increase the liquidity of their stock and make it more accessible to a wider range of investors.

While a stock split doesn’t change the value of a company, it can signal to investors a bullish view of the company’s executive team on future growth.