Final answer:
A corporation may justify a stock split to make shares more affordable and thus more attractive to a wider range of investors, increasing liquidity. This can signify management's confidence and facilitate stock-based compensation plans while not directly changing the company's intrinsic value.
Step-by-step explanation:
To justify a corporation's decision to split its stock when the stock price has risen significantly, it's crucial to understand the benefits of a stock split. A higher stock price might make shares less affordable to smaller investors; a split can reduce the price per share and make the stock more attractive to a broader range of investors. This can lead to increased market liquidity and potentially increase demand for the stock. It's also a signal to the market that the company's leadership believes the stock is valued high enough to sustain a split, which could be construed as a sign of confidence in the firm's future performance. Stock splits can also make it easier to manage stock-based compensation plans for employees.
It's important to note that while the perceived value might change, the intrinsic value of the company doesn't change directly because of the split. The decision to split could be influenced by several factors, such as making the stock more accessible, signaling confidence from management, practical management of compensation plans, or even just to adjust the stock price to a more commonly traded range. Issuing stock allows a company to access financial capital for expansion and makes the firm more visible in financial markets. However, this comes with various costs and requirements, including complying with Securities and Exchange Commission (SEC) regulations.