Question
Many public companies have tried to use stock splits in order to create an increased demand for their stock from the average investor who may
Many public companies have tried to use stock splits in order to create an increased demand for their stock from the average investor who may have been scared away by the current high trading price of one share of stock. The hope for the future is that, following a stock split, the demand will increase and eventually the stock price will rise and outperform the market as a whole. There are various studies and articles out there with different opinions on whether or not a stock split is good for the investor in the long term. Research some articles and at least one example of a company that had a stock split. Comment on:
1. What do the various studies say about the performance of the stock in the long term after a stock split?
2. Lowes company has had a stock split, analyze the stock price before the stock split, after the stock split and the current stock price as of today. Based on the average market increase over the years, what would you say about this companys stock performance after the stock split?
Date | Action | Shares | Shares After Split | Closing Price Before Split |
Oct 1961 | Bought 100 Shares | 100 | - | - |
April 1966 | 100% stock dividend (2 for 1) | 100 | 200 | 41.50 |
Nov 1969 | Stock Split (2 for 1) | 200 | 400 | 69.50 |
Nov 1971 | 50% Dividend (3 for 2) | 400 | 600 | 71.25 |
July 1972 | 33 1/3% Dividend (4 for 3) | 600 | 800 | 82.00 |
June 1976 | 50% Dividend (3 for 2) | 800 | 1,200 | 40.50 |
Nov 1981 | Stock Spilt (3 for 2) | 1,200 | 1,800 | 19.88 |
April 1983 | Stock Split (5 for 3) | 1,800 | 3,000 | 40.25 |
June 1992 | 100% Dividend (2 for 1) | 3,000 | 6,000 | 39.25 |
April 1994 | Stock Split (2 for 1) | 6,000 | 12,000 | 64.50 |
June 1998 | Stock Split (2 for 1) | 12,000 | 24,000 | 83.69 |
June 2001 | Stock Split (2 for 1) | 24,000 | 48,000 | 72.55 |
June 2006 | Stock Split (2 for 1) | 48,000 | 96,000 | 60.67 |
3. Do you think stock splits are good for the investor? Do you think they ultimately result in better performance, worse performance or no difference in performance over the long term?
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