Public companies listed on the New York Stock Exchange (NYSE) run the risk of being delisted if their share price declines below $1.00 for more than 30 straight days. The reason for engaging in a reverse split is normally related to the share price being too low. Reverse Split Rationale: NYSE Market Exchange Delisting Since management is aware of the negative consequences of a reverse split, the market is even more likely to interpret such actions as an admission that the company’s outlook appears grim. In theory, the impact of reverse splits on a company’s valuation should be neutral, as the total equity value and relative ownership remain fixed despite the change in share price.īut in reality, investors can view reverse splits as a “sell” signal, causing the share price to decline even further. The announcement of a reverse stock split often sends out a negative signal to the market, so companies are typically hesitant to perform reverse stock splits unless necessary. The concern with reverse stock splits, however, is that they tend to be perceived negatively by the market. Reverse Stock Split Impact on Share Price (and Market Valuation)
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