Affecting Price

• Some companies may see their stock prices increasing over time and eventually reaching an unaffordable level. Stocks trading at high prices attract fewer investors, narrowing shareholder base and preventing full and extended stock coverage that some companies would like to have. Through a stock split, a company can affect its stock price by reducing it to an affordable level, especially for smaller individual investors. As a lower stock price increases investor demand, the stock likely experiences renewed publicity that may also bring in more customer demand for its business.
  
  

Improving Liquidity

• Stocks in a certain price range tend to be more liquid in market trading. Investors may be concerned about buying low-priced stocks but, meanwhile, they may also be doubtful about high-priced stocks. Less investor participation means lower stock-trading liquidity. Without enough trading liquidity, stocks may face price instability in a down market and a lack of growth potential in an up market. A stock split helps adjust the stock price that is currently out of investors' desired trading range to improve trading liquidity.
  
  

Increasing Valuation

• As a stock becomes expensive, it can be more difficult for it to further advance, potentially at a lower pace and to a lesser degree with price increases. As a result, it may hinder a company's effort to continually increase stock value for shareholders. By implementing a stock split to make the stock more affordable and increase its trading liquidity, a company most likely will see its stock price increasing because of more investor demand. With a new round of price increases, a company is able to boost its stock valuation.
  
  

Affirming Growth

• A company may also consider a stock split beforehand if it anticipates strong upcoming earnings growth. In general, a stock price increases as company earnings grow. Having an early stock split to reduce stock price to a certain degree allows the stock to grow later with little upward price constraint. Or a company can wait until its stock has gone up to carry out the stock split. In either case, bringing about a stock split affirms a company's view on its earnings growth, and the market often perceives a stock split as a positive signal about a pending price increase on the stock.