A reduction in the number of issued and outstanding shares of stock which increases the share price proportionately. Reverse stock splits are most commonly used by public companies, particularly when their stock price has fallen and they want to prevent delisting under stock exchange minimum share price requirements or attract more investors (under the theory that increasing the per share price is attractive to investors).

After a reverse stock split, a current stockholder holds fewer shares, but each share is proportionately worth more. As a result, reverse stock splits do not change the aggregate value of what stockholders own or the overall market capitalization of the company. For example, if a company's stock is trading at $1 a share and the company declares a one-for-ten stock split, every ten outstanding shares held by a stockholder becomes one share with a value of $10.

For information on how to effect a reverse stock split, see Reverse Stock Split Checklist.