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Personal Finance: Stock splits shouldn’t matter. Why are they back? | Chattanooga Times Free Press

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Personal Finance: Stock splits shouldn’t matter. Why are they back? | Chattanooga Times Free Press

Stock splits are enjoying a resurgence as shares of some market darlings have soared.

Walmart got the party started with a 3-for-1 split in February, with eight other companies announcing intentions to follow suit by July. Nvidia recently completed a much anticipated 10-for-1 split, only to be eclipsed by the mother of all stock splits, Chipotle’s 50-to-1 exchange last week.

To a rational investor, a stock split should not matter. Why would Nvidia holders prefer 10 dimes over a dollar bill? While managers offer time-worn justifications, it turns out that the main reason splits matter to shareholders is our inability to do math in our heads.

A split merely alters the number of its total shares and proportionately adjusts the share price to hold the total value constant. Most common is a forward split, where the number of shares increases and the price per share decreases. Walmart’s 3-for-1 split gave shareholders an additional two shares for every one they owned, with each share now worth 1/3 its original value. Forward splits usually occur when the share price has risen sharply and are often viewed as a signal that management is optimistic about the company’s future. According to a Bank of America analysis of data going back to 1980, stock prices rise an average of 25% during the year after a split compared with 12% for the average S&P 500 stock, although the anomaly dissipates over time.

A reverse split is often employed by companies in distress whose share price has fallen to a level that signals concern to shareholders. The troubled workspace sharing company WeWork announced a 1-for-40 reverse split last August in an attempt to retain its listing on the New York Stock Exchange. A hypothetical investor holding 200 shares at 15 cents each would now own five shares worth $6 per share. It didn’t work, and the firm once valued at $47 billion filed for bankruptcy in November.

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Once upon a time, stock splits made sense. Until 1975, trade commissions were fixed by regulation, guaranteeing an oligopoly among the big brokerage firms charging sometimes hundreds of dollars per “round lot” or 100 shares. Given the high trading costs and 100-share minimums, many stocks were out of reach for smaller individual investors. Splitting the shares dropped the price of a round lot within reach of more investors.

Splits remained common throughout the 1990s, with 15% of Russell 1000 companies engaging in the practice toward the end of the decade.

Today, institutional investors like mutual funds and ETFs are by far the largest holders of stock and are agnostic about splits. Meanwhile, deregulation and the proliferation of discount brokers ignited a range war that drove commission rates to zero. Furthermore, investors can easily purchase any number of shares, and many brokers offer clients the ability to purchase fractional shares. Now even the smallest investor can purchase 1/20 of a share of Apple with no commission.

The frequency of stock splits slowed markedly in 2000 and all but ended after the financial crisis of 2008. By 2019, only three major companies split their shares, compared with 102 in 1997. So, it is a bit puzzling that the momentum has shifted again as more companies announce plans to split their shares.

Corporate executives announcing a split often cite a desire to engage more individual retail investors, and to increase liquidity or trading volume in their company’s stock. These motivations were initially supported by academic research carried out through the 1980s and 1990s during a very different market environment that limited retail investor access. So, considering the broad democratization of the stock market and compression of trading costs, why do stock splits still happen, and why do they affect the price when we know they shouldn’t?

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Recent research into behavioral economics provides an answer. Humans frequently fall back on “heuristics” or rules of thumb. We tend to think in absolute terms, focusing on the dollar value or change in a stock price, when we should be looking at the relative or percentage impact. For example, news reports of a 390-point gain in the Dow Jones average sound more impressive than a 55-point gain in the S&P, when each represents a 1% move. It has been repeatedly shown that most people perceive 10 out of 100 to be greater than 1 out of 10.

This cognitive bias, referred to as non-proportional thinking, ratio bias, or the numerosity heuristic, lead us to view “cheaper” stocks as more of a bargain and explains most of the price movement surrounding stocks splits. This misperception translates into increased post-split stock price volatility even though nothing really changed. Incidentally, heightened volatility increases the value of stock options that typically represent a large share of executive compensation, which could contribute to management’s decision.

Interestingly, Chipotle had a very specific goal in mind with its whopping 50-for-1 split: to reduce the share price enough to make employee stock awards practicable. The company announced it would begin granting stock to 20-year employees but needed to adjust the nearly $3,300 price. Following the split, the shares traded at around $66, allowing the company to award 10 or 20 shares to loyal employees.

Stock splits are entirely immaterial in the long run but do tend to impact short term prices, almost entirely due to how we apply our own mental rules of thumb. They’re back, and you can expect more to follow.

Christopher A. Hopkins, CFA, is a co-founder of Apogee Wealth Partners in Chattanooga.

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Finance

German finance minister wants to scrap spousal tax splitting

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German finance minister wants to scrap spousal tax splitting

Last weekend, several thousand people took to the streets in Munich to demonstrate against abortion and assisted suicide. One speaker made an extremely dramatic plea against what he called the “culture of death” that has allegedly taken hold in Germany. One sign of this, the speaker argued, was that the government is planning to abolish a regulation known as “spousal tax splitting.”

Is tax law really relevant to deep philosophical debates on the sanctity of life? It is even a matter of life and death at all? Surely we needn’t go that far? In any case, the intense political uproar surrounding the new debate on whether to abolish spousal tax splitting is notable, even by today’s standards of populist outrage.

An advantage for couples with widely divergent incomes

The row was sparked by Germany’s vice chancellor and finance minister, Lars Klingbeil, of the center-left Social Democratic Party (SPD), who said he wanted to abolish and replace the joint taxation of spouses’ income, a system that has been in place since 1958.

How exactly does spousal tax splitting work? In Germany, married couples (and since 2013, couples in civil partnerships), can choose to have their income assessed jointly by the tax authorities.

It means that the taxable income for both spouses together is halved – as if both partners had each earned an equal half of the income. Their tax liability is then determined by simply doubling the income tax due on one half.

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As people who earn more pay higher taxes in Germany, this system benefits couples where one partner (and often this is still the man) earns significantly more than the other (in practice often the woman).

Lars Klingbeil
Lars Klingbeil thinks spousal splitting is outdated and costs the state too muchImage: Bernd von Jutrczenka/dpa/picture alliance

Costs of up to €25 billion per year

If for example one partner earns €60,000 ($70,512) a year and the other partner earns nothing, the couple will be taxed as if they earned €30,000 each. In this example, the couple would save nearly €5,800 in taxes per year compared to the amount they would owe if both partners filed their taxes separately. According to the Finance Ministry, spousal tax splitting costs the government a total of up to €25 billion annually.

Some critics have long viewed splitting as a tool to keep women out of the labor market, because the more a woman earns, the larger her tax burden becomes. Klingbeil seems to agree, arguing on ARD television in late March that the system was “out of step with the times.” The spousal splitting system reflects “a view of women and families that is completely at odds with my own,” he said.

Chancellor Merz said to be in favor of splitting

On Monday of this week, Klingbeil got some surprising support on this from Johannes Winkel, head of the youth wing of the conservative Christian Democratic Union (CDU).

“Given the demographic reality, the government should create incentives to ensure that both partners in a relationship are employed,” Winkel told the Funke Media Group. “In the future, tax relief should primarily be granted to married couples when they are facing hardships related to raising children.”

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But the chancellor is a vocal skeptic of the proposal. “I am not convinced by the claim that joint filing for married couples discourages women from working,” Friedrich Merz said at a conference organized by the Frankfurter Allgemeine Zeitung newspaper. “Marriage is a relationship based on shared income and mutual support. And in a marriage, income must be treated as a joint income for tax purposes, not separately.”

Berlin under pressure to fix pensions, health care and taxes

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Klingbeil’s alternative plan

At around 74%, the labor force participation rate for women in Germany is one of the highest in Europe, but half of them work part-time.

Klingbeil’s idea is to replace the existing system with a more flexible approach: Both partners would be able to distribute tax-free income among themselves in such a way that it minimizes their tax liability. This would allow the couple to continue enjoying a tax advantage, albeit not to the same extent as before. And whether one partner earns more than the other would become less important.

However, it remains to be seen whether Klingbeil will be able to push through his proposal. Aside from Germany, similar regulations offering tax benefits to couples exist in Poland, Luxembourg, Portugal and France.

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This article was originally written in German.

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Departing inspector general targets Council Office of Financial Analysis

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Departing inspector general targets Council Office of Financial Analysis

The $537,000-a-year office created in 2014 to advise the City Council on financial issues and avoid a repeat of the parking meter fiasco has failed to deliver on that mission, the city’s chief watchdog said Tuesday.

Days before concluding her four-year term, Inspector General Deborah Witzburg said a shortage of both adequate staff and financial information closely held by the mayor’s office prevents the Council’s Office of Financial Analysis from helping the Council be the the “co-equal branch of government” it aspires to be.

In a budget rebellion not seen since “Council Wars” in the 1980s, a majority of alderpersons led by conservative and moderate Democrats rejected Mayor Brandon Johnson’s corporate head tax and approved an alternative budget, including several revenue-generating items the mayor’s office adamantly opposed.

But Witzburg said the renegades would have been in an even better position to challenge Johnson if only their financial analysis office had been “equipped and positioned to do what it’s supposed to do” — provide the Council with “objective, independent financial analysis.”

“We are entering new territory where the City Council is asserting new, independent authority over the budget process. It can’t do that in a meaningful way without its own access to financial analysis,” Witzburg told the Chicago Sun-Times.

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Chicago Inspector General Deborah Witzburg’s latest report focuses on the Chicago City Council’s Office of Financial Analysis.

Jim Vondruska/Jim Vondruska/For the Sun-Times

But the Council’s financial analysis office, she added, “has never been equipped or positioned to do what it needs to do. It needs better and more independent access to data, and it needs enough staff to do its job. It has a small number of employees and comparatively limited access to data.”

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The inspector general’s farewell audit examined the period from 2015 through 2023. During that time, the financial analysis office budget authorized “either three or four” full-time employees. It now has a staff of five .

Witzburg is recommending a staffing analysis to identify how many people the financial office really needs — and also recommending that the office “get data directly” from other city departments, “ rather than having it go through the mayor’s office.”

The audit further recommends that the office develop “better procedures to meet their reporting requirements” in a timely manner. As it stands now, reports are delivered “sometimes late, sometimes not at all,” the inspector general said.

“We find that those reports have been both not timely and not complete in terms of what they are required to report on and that those reports therefore have provided limited assistance to the City Council in its responsibility to make decisions about the city’s budget,” she said.

The Council Office of Financial Analysis responded to the audit by saying it hopes to add at least three full-time staffers in the short term and has made “some progress” over the last three years in improving their access to data, but not enough.

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The office was created in 2014 to provide Council members with expert advice on fiscal issues.

For nearly two years the reform was stuck in the mud over whether former 46th Ward Ald. Helen Shiller had the independence and policy expertise to lead the office.

Shiller ultimately withdrew her name, but the office was a bust nevertheless. In an attempt to breathe new life into it, sponsors pushed through a series of changes.

Instead of allowing the Budget chair alone to request a financial analysis on a proposal impacting the city budget, any alderperson was allowed to make that request.

The office was further required to produce activity reports quarterly, not just annually.

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Now former-Budget Chair Pat Dowell (3rd) then chose Kenneth Williams Sr., a former analyst for the office, as director and gave him the “autonomy” the ordinance demanded.

Two years ago, a bizarre standoff developed in the office.

Budget Committee Chair Jason Ervin (28th) was empowered to dump Williams after Williams refused to leave to make way for a director of Ervin’s own choosing.

The standoff began when Williams said he was summoned to Ervin’s office and told the newly appointed Budget chair was “going in a different direction, and I’m putting you on administrative leave” with pay.

“He took all my credentials and access away. I would love to come to work. I wasn’t allowed to come to work,” Williams said then.

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Williams collected a paycheck for doing nothing while serving out the final days remainder of a four-year term.

Ervin’s resolution stated the director “may be removed at any time with or without cause by a two-thirds” vote or 34 alderpersons. He chose Janice Oda-Gray, who remains chief administrator.

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Reilly Barnes Returns to Little League® as Purchasing/Finance Assistant

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Reilly Barnes Returns to Little League® as Purchasing/Finance Assistant

Little League® International has announced that Reilly Barnes accepted a new role as Purchasing/Finance Assistant, effective April 6, 2026. Barnes transitions from a temporary Purchasing Assistant to this full-time position to assist in the year-round demands of purchasing for the organization, as well as the region and Little League Baseball and Softball World Series tournaments. 

“We are thrilled to welcome back Reilly to our team as a full-time Purchasing/Finance Assistant. Reilly’s prior experience, time management, and attention to detail make him an invaluable asset to the purchasing team,” said Nancy Grove, Little League Materials Management Director. “We look forward to the positive contributions he will have on our organization.” 

In this role, Barnes will be responsible for processing purchase requisitions, coordinating souvenir products, and tracking order fulfillment. He will also assist with evaluating suppliers, reviewing product quality, and negotiating contracts for effective operations.  

After most recently working as a Logistician Analyst at Precision Air in Charleston, South Carolina, Barnes, a Williamsport native, returns after honing his skills in the fast-paced environment. Prior to his time at Precision Air, Barnes served as a Procurement Specialist at The Medical University of South Carolina, where his expertise and knowledge were instrumental in supporting both education and healthcare needs.  

“I am thrilled to return to Little League in this full-time role,” said Barnes. “Coming back to my hometown and having the opportunity to work for an organization that has played such a special part of my upbringing means a lot. I can’t wait begin this new opportunity.” 

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Barnes graduated from the University of Pittsburgh in 2022 with a B.A. in Supply Chain Management, Finance, and Business Analytics.  

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