Reverse Stock Splits

Written by True Tamplin, BSc, CEPF®

Reviewed by Subject Matter Experts

Updated on June 08, 2023

In somewhat rare situations, a company's board of directors may wish to increase the value per share by reducing the number of outstanding shares.

While purchasing treasury stock reduces the number of shares, the action may not increase the market value per share because of the reduction of the corporation's resources.

Thus, some corporations go through reverse stock splits in which the charter is amended to reduce the number of shares and increase the par value.

Like other splits, a reverse stock split does not produce any journal entries or changes in paid-in-capital. However, it does call for modified disclosures of stockholders' equity and earnings per share.

Reverse Stock Splits FAQs

About the Author

True Tamplin, BSc, CEPF®

True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.

True is a Certified Educator in Personal Finance (CEPF®), author of The Handy Financial Ratios Guide, a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.

To learn more about True, visit his personal website or view his author profiles on Amazon, Nasdaq and Forbes.