What are reverse splits?
A reverse split is a decrease in a corporation’s number of outstanding shares of stock without any change in the shareholder’s equity or the aggregate market value at the time of the split. The share price and dividends per share are adjusted proportionately. A reverse split will decrease the number of outstanding shares. A 1-for-5 split would leave an investor with one share of a company stock for every five owned, boosting the share price by a factor of five. Stock distributions in the form of dividends or splits would be used for stocks priced too high, while reverse splits would be used for low-priced stocks. Reverse splits have interesting consequences for the stock price. In these instances, studies have found substantial negative price performance when the announcement is made, approved and executed. In a large number of cases, the stock price continued to decline even in the long run. Reverse splits often occur when a company trading over-the-counter with a low-priced stock is
