Identify and define three reasons for stock splits

What will be an ideal response?

Answer: Although stock splits appear to have no impact on the value of the firm, they do regularly occur and three popular reasons have been identified for their existence. First, one can argue that stocks are more popular if they trade in a preferred trading range. A price range of $20-$40 per share allows investors to purchase modest amounts of stock in round lots of one hundred shares per lot. This helps reduce transaction costs on a per share basis and may support broad market participation by a greater number of investors.
A second reason for stock splits is that they send a signal to investors. As stock prices rise above preferred trading ranges, management sends a signal to investors that says stock prices are unlikely to return to preferred (lower) prices without a positive split.
Finally, lower prices per share and more outstanding shares provide greater liquidity, thus making it easier for more investors to trade the stock. However, this argument is not well-supported by empirical evidence and tends to be downplayed by investors.