Survival: A Motivation for Reverse Stock Splits

This study investigates delisting avoidance on an exchange as a motivation for reverse stock splits. I examine the different motivations for reverse splits for stocks at different pre-split price levels by dividing the sample into two groups, below or equal to $2, and above $2. Using a control sample of firms receiving delisting warnings, I find that firms on the brink of delisting, use reverse splits to extend exchange listing time. For firms with a pre-split price above $2, I find that liquidity enhancement may be the motivation for reverse splits.