A process whereby a company decreases the par or stated value of its common stock and issues a pro rata number of additional shares. It applies to all types of common shares including the issued, unissued, and treasury shares. Stocks splits help reduce the market price per share of stock. As such, a company can attract more investors to hold its stock and widen the base of its stockholders both in terms of investor numbers and classes. In general, stock splits are used instead of stock dividends when a company seeks to increase the number of shares of its common stock outstanding by more than 25 percent. Stock splits are usually expressed as ratios such as a 2-for-1 or 4-for-1. For example, a two-for-one stock split indicates that additional shares are issued at a rate of two shares after the split for every one share before the split.

By stock splits, companies attempt to bring the prices of their stock to a more attractive trading range.