The share of Amazon almost brushed $1,000 before closing at $993.38. The price acceleration just shows the company’s development and power, and marks an example of a company whose stock price grows without depending on or engaging in “split” that increases the number of shares in order to lessen the per share price.
Other big companies admire such height. Only 2 S&P 500 companies have split their stock, so far this year. On one hand, last year, six companies in the large-company index also did split their stocks.
After how any years of staying between $25 and $50 range, the usual stock in the S&P 500 is now trading above $98 and is considered the highest stock ever.
A finance professor at the University of North Carolina's Kenan-Flagler Business School, William C. Weld, said that the big stock price is "a new way of calling attention to yourself. He added that splitting share is a sign of a stable and reliable company.
"Companies now are saying 'look at us, we're tough and strong."
Before, when picking on one’s own account was widely used, companies also considered the splitting of shares to make it affordable, thus, it attracts different investors.Although it does nothing fundamentally about the company with the stock split, splits was being done to generate excitement, as well as, a short term pop for the shares.
"If you split the stock, you are effectively providing a source of income to the brokerage community," said Weston Hicks, the longtime chief executive of insurer Alleghany Corp., which trades at $588.15. "We're trying to appeal to the long-term investor, and keeping a consistent scorecard is the way to do that."
There exists other reason behind the picture of this development. Before the rise of discount of stock broker’s business and a decrease in the trading commissions in the 1990s, even minor investors often had to buy shares in around lots of 100, which meant that a high price could make the purchase more expensive. Presently, retail investors can buy shares as little as one share and often pay $10 or less as commissions.
Scholar’s who have studied share splits also noted that executives who do company’s stock splitting may be encouraged to maintain their share prices from appearing expensive. Today, some companies and investors appear to take higher stock prices as indication of growth and development and “equally nonsensical" as Richard Thaler, an economist from the University of Chicago Booth School of Business, calls it.
"But at least Amazon can say 'well, the market sent us all the way up here,' " said Mr. Thaler, who co-wrote an academic paper on stock splits with UNC's Mr. Weld in 2009.
In his opinion, Mr. Weld said that companies may have put off on splitting shares, in the past years, in consideration of the financial struggles, when stock prices decreased gradually and some big companies were humbled into acting reverse splits just to increase their share price, hence, avoiding from being removed in the list.
Even the major critics of the share split say there are times when it is necessary, so long as it's about more than a cosmetic decreasing of the share price. Google effectively splits its shares by creating a new class of stock in 2014. Apple Inc. did an unusual 7-for-1 split that same year, a move that dropped the price of the shares to a level where the company could be comfortably added to the price-weighted Dow Jones Industrial Average in 2015. And even Berkshire Hathaway did a stock split in 2010, when it divided its Class B shares 50-for-1 alongside its acquisition of railroad Burlington Northern Santa Fe Corp. Those cheaper shares were used to buy out small BNSF shareholders in the cash-and-stock deal.
Amazon founder and CEO Jeff Bezos hasn't ruled out the idea of a split, which the firm did three times as a young public company.
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