Final answer:
A corporation splits its stock to decrease the market price of its stock, making it more marketable and accessible to a broader range of investors. This action does not directly impact the company's retained earnings or shareholders' capital gains and dividends but may indirectly affect the stock's market price through increased liquidity.
Step-by-step explanation:
A corporation will primarily split its stock to decrease the market price of its stock to make it more marketable. A stock split is a decision by the company's board of directors to increase the number of shares that are outstanding by issuing more shares to current shareholders.
The reason behind a stock split is not to increase or decrease retained earnings but rather to make the stock more attractive to a broader range of investors by making shares more affordable. When the market price of a company's stock is very high, it may deter small investors from buying it. A stock split can lower the per-share price without changing the underlying value of the company, potentially leading to increased liquidity and wider ownership.
Neither the capital gain nor dividends are affected directly by a stock split. These aspects depend on the performance of the company and its profitability, not the number of shares outstanding. However, if the stock becomes more marketable due to the split and attracts more investors, this could indirectly impact the company's share price through increased demand.