A year later: Did stock split decisions achieve targets?

Tadawul trading screen 

As many as 42 companies, listed on TASI) and Nomu-Parallel Market, benefited from the mechanism of stock par value reduction since the Capital Market Authority (CMA) implemented the Companies Law and its Executive Regulations on Jan. 19, 2023 until the end of the year.

Companies decided to split the stock par value from SAR 10 to various lower values, representing 14% of the total number of Tadawul-listed companies.

Seven listed companies reversed their split decisions for various reasons, including the lack of immediate need.

The Companies Law has allowed more flexibility for companies to increase or decrease the par value of their shares, after canceling the minimum stock par value and specifying it in the company’s articles of association. The decision to split stock par value is now made based on a recommendation from the board of directors.

The decision becomes effective after it is approved by the general assembly.

Nomu witnessed the biggest momentum for stock split operations in 2023, with 24 companies implementing the measure. These firms represent 57% of the total companies stock splits in TASI and Nomu, and 36% of the 67 Nomu-listed companies.

Meanwhile, 18 Main Market companies benefited from the stock split mechanism, representing 8% of the 230 companies listed on TASI.

Liquidity levels rose significantly in 2023 after the par value reduction of high-priced companies. This was in line with the primary goal of the decision, as this mechanism is applied when the share price is high in order to boost the stock liquidity, so that it is accessible to a larger category of investors.

As for the post-split liquidity levels for companies with stock prices below SAR 50 per share, the liquidity declined significantly after the split process.

Following the implementation of the stock split mechanism, there were certain demands for amendments, most notably unifying the par value of listed companies, for several reasons, including the ease of dealing with companies without the need to search for their par value. However, when monitoring global practices for the split mechanism, it becomes clear that there is no specific number of split times for a stock, as companies can split their shares as many times as they wish.

Improving liquidity emerges as one of the main goals for companies to use the stock split mechanism by increasing the number of shares available for trading, with the aim of providing the opportunity to the largest number of investors, and facilitating the entry of small traders into companies with high stock prices and expanding their investor base.

Moreover, the stock split process creates opportunities for companies to grow, and increases the possibility of a higher stock market value to increase demand, according to market analysts.