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Reverse Stock Split: Definition and Implication

A reverse stock split reduces the number of shares and increases the share price proportionately.

For example, if you own 1,000 shares of a company and it declares a one for ten reverse stock split, you will own a total of 100 shares after the split.

The reverse stock split has no effect on the value of what shareholders own since everyone's shares are affected equally.

Companies split their stock when they believe the price of their stock is too low, especially since many institutional investors and mutual funds have rules against purchasing a stock whose price is below a set minimum

Hence, in basic terms a reverse stock split or reverse split is the opposite of a stock split. i.e. it is a stock merge.

A company’s board may declare a reverse stock split without shareholder approval.


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