Stock Split – What Happens in a Share Split?

What Is a Stock Split?

A stock split (also called a forward stock split) is the conversion of existing shares into a larger number of new shares with a lower nominal value. In transaction terms, this is the opposite of a share consolidation (reverse stock split).

Example: 2-for-1 Split

Where Is a Stock Split Decided?

A stock split is resolved at the shareholder meeting and is purely psychological in nature, since the ownership ratios don't change. The individual share becomes cheaper in market price, without changing the company's equity or the value of an individual shareholder's holdings.

Who Must Approve a Stock Split?

A stock split can never be carried out without shareholder approval and must be discussed and passed as a separate agenda item at the shareholder meeting. A simple majority is sufficient for this.

Why Do Companies Carry Out Splits?

• Accessibility: High prices deter retail investors; a split makes the stock more affordable.
• Liquidity: More shares in circulation increase trading volume.
• Psychological effect: Lower prices appear visually "cheaper".

Consequences of a Stock Split

In most cases, a stock split, similar to a dividend payout, would lead to a price drop. With a 1:2 split, the nominal value and market price would suddenly be halved, which investors might mistakenly interpret as a 50% decline. Therefore historical prices are automatically adjusted in most programs, so the stock split is not immediately visible in the price chart.

When analyzing historical price data – especially prices, trading volume and turnover – increased caution is therefore always advised, so as not to accidentally mix adjusted values with original data.

Psychological Effect

In many cases, stock splits are perceived as a sign of strength, since the market price of the company has risen sharply in the past and the split makes the stock appear at least nominally cheaper. This way, the stock becomes more easily tradable and more attractive to a broader range of investors – which can help the share price in the medium to long term.

Stop-Loss Orders and Stock Splits

The falling price resulting from a stock split can in some cases trigger stop-loss orders. To prevent such a price collapse, stop-loss orders are usually automatically deleted and deactivated for stock splits. Details on this can be found in the terms and conditions of the respective bank or broker.

Reverse Split (Share Consolidation)

The opposite of a split is the reverse split: several shares are consolidated into one, and the price rises proportionally. This is often used for stocks with sharply declined prices to improve their image or meet minimum listing requirements.

Capital Gains Tax on Stock Splits

Simple stock splits result in no tax changes whatsoever. As long as neither the ISIN nor the WKN are changed, no additional tax burden arises according to the German association for the protection of securities holders (DSW).

A well-known counterexample: Google issued new C-Class shares with a new WKN and ISIN as part of its 2014 stock split. German tax authorities considered this a dividend in kind – so German Google shareholders became liable for capital gains tax.

Effect on Financial Ratios

Since the company's substance doesn't change, aggregate-value ratios (market cap, EV) remain unchanged. Per-share ratios (EPS, dividend, book value), however, change proportionally. Finanzoo adjusts historical prices and ratios for splits, so comparisons remain accurate.

Split Adjustment in Finanzoo

Finanzoo retroactively adjusts all historical price data for splits. This keeps price histories and ratios historically accurate and comparable – the price chart always shows the split-adjusted price.