UK Accounting Glossary
A reverse stock split is a method used by a corporation to reduce its number of shares outstanding while increasing proportionate per-share price. A reverse stock split is the opposite or reverse of a stock split, where shares are increased. A reverse stock split does not change the total value of outstanding shares, rather increases what each share is worth. An example of a reverse stock split is a 1-for-3 split, which would result in shareholders owning one share of stock for every three shares previously owned before the reverse stock split. Corporations often use a reverse stock split to amplify the price of their stock and attract investors. However, many investors do not look favourably upon a reverse stock split, as a corporation can use a reverse stock split to hide falling stock prices.
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This glossary post was last updated: 6th February 2020.