Shareholder’s equity is impacted by both stock split and stock dividend announcement. While in some cases the outcome of the above undertaking differs based on the nature of the stock or external market forces, this is mostly pursued when the positive outcomes outweigh the negative. In the article analyzed, there is a positive impact on shares’ prices when there are stock splits and stock dividends announcements( El Ansary et al., 2017). Although the analysis only applies to stocks traded on the Egyptian Stock Exchange (EGX), the effect can be replicated in other similar environments.
One of the most important assertions to note from the article is that with Stock splits and stock dividends announcements, shareholders can receive new shares without incurring an extra cost. While the shares’ value does not change, the prices could be positively influenced by different factors ( El Ansary et al., 2017). . An intriguing question one should ask themselves is if stock split and stock dividends do not provide an entity with extra finances, drives such actions?
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It is crucial to note that even though in the short term, the shareholders might not realize a difference in the stocks, in the long run, stock split and stock dividends could attract more investors into the company in question. Besides, such actions ensure share prices do not reach stratospheric levels; hence some concerned investors are not deterred from investing in the entity’s shares.
The concepts presented in the article analyzed are contextualized by the case study about financial moves by MasterCard. One lesson picked from the case is that a company that can initiate stock splits and increases dividends entitled to each shareholder, for the benefit of the shareholders is an excellent place to invest in. However, investors should be wary of such moves before they invest in companies whose offers seem attractive. The main problem that investors should be concerned about is the risks that come with share dilution. The decision to purchase shares from a company should always be based on the fact that dilution boosts revenue.
References
El Ansary, O. A. E., & El-Azab, M. H. (2017). The impact of stock dividends and stock splits on shares’ prices: Evidence from Egypt. Accounting and Finance Research , 6 (4), 84-96.
