A Study On “Implications Of Stock Splits In India”

Abstract

Stock split means division of the face value of the stock. Stocks are basically split to increase the supply of stocks in the market. Stock splits do not change the capital structure and capitalization but they only readjust them and thereby increase or decrease number of outstanding shares of the company. Stock splits are different from other corporate actions like buyback of shares, bonus issues and right issues. This research article concentrates on the concept of stock splits – a theoretical framework including guidelines for stock splits in India. The present research article does not employ any specific tool for organizing the existing literature on the stock splits. The research article concludes that the companies in India like the companies in advanced countries should split their stocks only when they are sure that their stock splits will ensure abnormal returns, increase in the volume of trading and signal the better prospectus for the company in the future. The companies in India should not frequently split their stocks to manipulate the share price and confuse the market.