Stock Splits Enriching Trading Firms More Than Investors

WASHINGTON -- Many small investors still applaud when they hear of a stock split, assuming the company must be healthy, or that the more shares they own, the faster their investments will grow. Wall Street pros have long known that splits -- usually issued when a stock hits a price deemed too steep for ordinary investors -- do nothing to change the overall value of the shares. Now comes new research that indicates splits, in fact, may be harmful to consumers while lucrative for trading firms.

"I thought that people weren't taken in by stock splits, but I guess not," said Paul Schultz, a finance professor at the University of Notre Dame, who conducted the study and whose previous work triggered a Nasdaq price-fixing scandal.

His latest research indicates that when a stock splits, small investors snap it up at the urging of brokers and trading firms, which are able to earn more through higher trading profits and per-share fees. ...