What effect does a stock split have on total equity?

A stock split is a corporate action where a company divides its existing shares into multiple new shares to increase the number of shares outstanding while maintaining the overall value of equity. This process does not affect the company's total equity because it essentially just redistributes the existing equity among a greater number of shares.

When a stock split occurs, the par value of each share is adjusted downward proportionately, meaning that while shareholders hold more shares, the value of each share is reduced in line with the split ratio. For example, in a two-for-one stock split, if an investor previously held one share valued at $100, after the split, they would hold two shares valued at $50 each. The total investment value remains $100, which reflects that total equity is unchanged.

This foundational aspect of stock splits means that the overall equity position of the company does not increase or decrease as a result—rather, it remains constant, thus confirming that total equity remains unchanged following a stock split.