$CERo Therapeutics (CERO.US)$ A reverse stock split does not...
A reverse stock split does not change the overall value of the company. The market capitalization before and after the split should remain the same. The factor that factors into a company's decision to do a reverse stock split becomes a multiple of the market-adjusted stock price.
Examples of reverse stock splits include AT&T Inc.'s 5-for-1 reverse split in 2002 to prevent a decline in the stock price and to maintain liquidity during the split. Many small nonprofit companies engaged in research and development also do reverse stock splits to maintain their listings on major stock exchanges.
Reverse splits are often done when a company's stock price has fallen too low and it is at risk of being delisted. A higher stock price can also attract some investors who are reluctant to buy low-priced stocks. With a reverse split, shareholders of record will see the number of shares they own decrease, but the price per share will increase proportionally. This adjustment is automatically processed by brokers and it has no tax implications.
Reverse splits are generally viewed as negative because they indicate a decline in the company's stock price, which may make high-priced stocks less attractive to some retail investors. Exchange-traded products like ETNs may periodically do reverse splits due to natural decay in value, but these products are not suitable for long-term holding.
In summary, a reverse stock split consolidates the stock and has no effect on the value of the company. It is often viewed negatively as a means of inflating the stock price without increasing the value of the company.
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