Securities lawyers say the practice is relatively common for firms whose stock falls into the sub-dollar range. However, it's not seen as a great image-booster. Yoon's comment was rather prescient in Musicmaker's case. On Thursday afternoon, two weeks after first announcing the reverse split, Musicmaker said it is cutting nearly a third of its staff in a restructuring plan the company promised would help reduce its cash-burn rate. The stock closed at 56 cents.
Shareholders still perceive it as the company's taken away something.
The reaction is the direct opposite of what happens in a standard stock split. In a regular, or forward split, a company exchanges each single share for two or more shares worth a fraction of the value. Although they're not getting more money, investors tend to see forward splits as a sign that a stock is moving upward. Before April, forward splits were far more common than reverse splits. Popular Internet stocks like Yahoo and eBay, for example, split to keep stock prices from surging high into the triple digits.