STOCK SPLIT DECISION DECREASE OR INCREASE SHARE HOLDERS' WEALTH Case Solution And Analysis, HBR Case Study Solution & Analysis of Harvard Case Studies

Stock Split Decision Decrease or Increase Share Holders' Wealth Case Solution

Introduction

The major focus of the organizations is to enlarge the capacity for investment in the market when there is a high stock price of shares (Mukherji, S., Kim, Y.H. and Walker, M.C., 1997). When there is a high stock price in the market and firm want to increase the standard board lot by acquiring 100 shares of the board lot then it needs to get its shares split that is known as stock split. In the companies, share splits represent book entries that is not headed firms toward firm’s cash flows(Kalotychou, E., et al, 2009). However,these splits in the shares involve a huge cost to the firm. It has been identified in previous studies that speculation in the stock splits can cause the amendments in the structure of ownership of the companies with the enhancement in the investment by the shareholders that are posed towards reduction in institutional ownership (Mukherji, S., Kim, Y.H. and Walker, M.C., 1997).

1.1 Overview

When there is a high price of shares in the market then it becomes difficult for the small investors who are not able to buy shares of the companies since they cannot afford prices to buy them(Kalotychou, E., Staikouras, S.K. and Zagonov, M., 2009). Furthermore, companies are also dis advantageous at this stage when there number of shareholders gets decreased due to high prices of shares. Hence,stock split helps companies to increase in the number of shareholders (Devos, E., Elliott, W.B. and Warr, R.S., 2015).

With the split of stock and decreasing the cost of shares to half of the amount of share, companies want small investors to get approach to their shares when there is high price in the market(Kalotychou, E., Staikouras, S.K. and Zagonov, M., 2009). The split into stock is to enhance the number of investors because the increasing price of the shares does not allow small investors to purchase the high priced shares of markets. Hence, stock split accommodates shareholders with at ease they are able to purchase the shares at half of the shares (Devos, E., Elliott, W.B. and Warr, R.S., 2015). Small investors thus, get benefit with the low price of the shares. Moreover, company also remains at benefit as it get enhancement in their shareholders(Leledakis, G.N., Papaioannou, G.J., Travlos, N.G. and Tsangarakis, N.V., 2009).

It has been demonstrated from the studies that stock split does not affect on the financial and operational structure of the firm (Devos, E., Elliott, W.B. and Warr, R.S., 2015). Moreover, it has not been proven as the purely cosmetic events but it is positively significant to the prices of share(Kalotychou, E., Staikouras, S.K. and Zagonov, M., 2009). Moreover, no evidence has been found for the significance of liquidity on stock splits. However, it has been found positively significant that has caused abnormal returns with the stock splits in the several markets including United States, Denmark and Spain.

1.2 Problem Statement

With the announcement of split stock market get un-entrenched, it reacts severally towards shares. The reaction is simply a change in the number of outstanding shares that is generally, increased numbers (Devos, E., Elliott, W.B. and Warr, R.S., 2015). The perspective change in the outstanding number of shares against announcement is known as cosmetic events (Mukherji, S., Kim, Y.H. and Walker, M.C., 1997). Moreover, it has evaluated from the studies that there is a significant impact of stock split. However, it has not been evident thatthe stock split is a cosmetic event. Stock splits are leveraged when the trade costs of the firm become neutral and the price level have no significance on clienteles of different investors(Kalotychou, E., Staikouras........................

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STOCK SPLIT DECISION DECREASE OR INCREASE SHARE HOLDERS’ WEALTH Harvard Case Solution & Analysis