 |
This article needs additional citations for verification. Please help improve this article by adding reliable references. Unsourced material may be challenged and removed. (November 2007) |
On a stock exchange, a reverse stock split or reverse split is the opposite of a stock split, i.e. a stock merge - a reduction in the number of shares and an accompanying increase in the share price.[1] The ratio is also reversed: 1-for-2, 1-for-3 and so on.
There is a stigma attached to doing this so it is not initiated without very good reason. Many institutional investors and mutual funds, for example, have rules against purchasing a stock whose price is below some minimum, perhaps $5. An extreme case would be when a share price has dropped so low that it is in danger of being delisted from its stock exchange.
It is also possible that a reverse stock split could be used as a tactic to reduce the number of shareholders. In a hypothetical 1-for-100 reverse split any investor holding less than 100 shares would simply receive a cash payment and no shares of stock. If the resulting number of shareholders has then dropped below some threshold, it may be placed into a different regulatory category; such as an S corporation which is required by law to have fewer than 100 shareholders.
Typically, the stock will temporarily add a "D" to the end of its ticker during a reverse stock split.
References
External links
|
|||||||||||||||||||||||
 |
This economics or finance-related article is a stub. You can help Wikipedia by expanding it. |
This entry is from Wikipedia, the leading user-contributed encyclopedia. It may not have been reviewed by professional editors (see full disclaimer)
