What occurs during a stock split?

During a stock split, the company divides its existing shares into a greater number of shares, which is why this answer is correct. The primary purpose of a stock split is to make shares more affordable to a larger number of investors, thereby increasing liquidity in the market. For example, if a company performs a 2-for-1 stock split, each shareholder will receive an additional share for every share they already own, effectively doubling the number of shares, while the overall value of the investment remains the same due to the adjustment in share price.

In a stock split, although the number of shares increases, the market capitalization of the company remains unchanged—it is simply spread over a larger number of shares. This adjustment results in a proportional decrease in the share price; however, the fundamental value of the company and the total investment do not change. This action does not involve changes to dividends, retirement of shares, or eliminating the share price in any form.