February 19, 2003

Ikenberry Comments on Microsoft Stock Split

USA Today's coverage of the first-ever stock split by Microsoft includes comments from Department of Finance Chair David Ikenberry. According to the February 19 article by Matt Krantz, the size of the Microsoft development is worthy of note:

While stock splits aren't unusual, the sheer pile of shares created by Microsoft's is. Following the 2-for-1 split, Microsoft (MSFT) has enough stock to give nearly two shares to every man, woman and child on Earth. If you were to keep all of Microsoft's shares within the USA's borders, the per-person allotment jumps to nearly 38.

The market value of Microsoft was close to $260 billion before and after the split. And the company has the distinction of having the most shares outstanding of any US company.

Krantz notes that, generally speaking, stock splits are not viewed by management as advantageous when stock prices are falling. However, Microsoft's management has been speaking optimitically about the future. He includes the following from Ikenberry:

Companies that split their stock "tend to be the companies most confident about their future," he says. And in Microsoft's case, that would be confidence at the top of the tech industry.

Research by Ikenberry was cited late last year by both the Wall Street Journal and the New York Times. He and Sundaresh Ramnath, assistant professor of accounting at Georgetown University, collaborated on a comprehensive study looking at over 3,000 U.S. splits from the 1990s that was published in 2002 by The Review of Financial Studies.