The National Directory of Certified Public Accountants

Ask A CPA - Investments & Financial Planning

What Is A Reverse Stock Split Strategy ?

A Reverse stock split strategy is when there is a proportionate decrease in the number of shares, but not the total value of shares of stock held by shareholders. Shareholders maintain the same percentage of equity as before the split. A 1-for-3 split would result in stockholders owning one share for every three shares owned before the split. After the reverse split, the firm's stock price is, three times the before reverse split price. A firm generally institutes a reverse split to boost its stock's market price. Some managers think this strategy supposedly attracts investors.

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