Why Did IBM Stock Split in 2012?


Quick Answer

IBM did not split its stock in 2012, states StockSplitHistory.com. The general purpose of a stock split is to reduce a company's stock price to make it appear more affordable to investors without causing a loss in value for existing shareholders, according to Investopedia.

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Full Answer

Shares are normally exchanged in board lots of 100, Investopedia explains. As a result, small investors struggle to purchase ownership in companies with high stock prices. As of mid-2012, IBM shares were trading at approximately $200 and financial commentators such as those at Seeking Alpha and InvestorPlace saw them as being ripe for a split. However, the company has not split its stock since 1999, according to StockSplitHistory.com.

While any price reduction resulting from a stock split should be proportionate to the decrease in per-share ownership in the company, the influx of additional investors following a stock split can cause prices to rise slightly and increase the market capitalization of the business, Investopedia advises. Stock splits improve a share's liquidity by reducing the large bid-ask spreads that can occur with expensive stocks. Existing shareholders also experience a psychological effect from the appearance of having greater ownership in the company with a large number of shares.

Another reason why IBM would consider a stock split would be its inclusion in the Dow Jones Industrial Average, according to Seeking Alpha. Because the Dow Jones is a price-weighted index, higher value stocks have a disproportionate impact.

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