How do the reverse stock split of the common stock affect the stock price?

A reverse stock split is a corporate action in which a company divides its existing shares of stock into fewer, higher-priced shares. This results in a decrease in the total number of outstanding shares while proportionally increasing the price per share. The primary reason for a reverse stock split is to boost the stock price, which can have several implications:

1. Stock Price Increase: The split will increase the price per share, which may make it more attractive to investors.

2. Market Perception: A higher stock price can positively influence investor perception and potentially attract more buyers.

3. Compliance with Exchange Requirements: In some cases, a reverse stock split may help a company meet the minimum bid price requirements of an exchange to avoid delisting.

However, it's important to note that a reverse stock split does not impact the overall value of an investor's investment. The company's market capitalization remains the same, and the split is merely a restructuring of the share count and price. Investors should carefully evaluate the company's financial health and future prospects before making investment decisions.