Stock dividends and splits affect common stocks market price

Question

Explain in detail stock dividends and stock splits affect the common stock’s market price. Also explain why a firm declares stock dividends and stock splits?

Answer 1

Stock splits and stock dividends reduce the price per share of a common stock but it must not raise total market value of all common stock which are outstanding unless some other positive things are supposed to occur.  Many companies think that a stock split or stock dividend will make their stock more affordable and consequently more attractive to variety of potential investors.