Do bonus issues and stock splits increase shareholder wealth?

No, both actions increase the number of shares an investor owns but do not alter their total investment value. The share price adjusts proportionately, keeping the market capitalisation and total shareholder wealth unchanged.

How do companies decide between a bonus issue and a stock split?

A company announces a bonus issue when it has strong reserves and wishes to reward existing shareholders, whereas it goes for a stock split when the share price has risen significantly, making it expensive for small investors to buy.

Does a bonus issue affect a company’s balance sheet?

Yes. A bonus issue increases the share capital by capitalising the company’s free reserves or retained earnings. This adjustment transfers part of the reserves into share capital without changing the company’s overall net worth.

Which corporate action improves liquidity more, a bonus or a stock split?

Both increase liquidity, but stock splits are more effective in improving market participation because they directly reduce the share’s face value and make the stock appear more affordable to retail investors.

Are there any tax implications for investors receiving bonus shares or during a stock split?

Bonus shares are not taxed at the time of issue; they become taxable only when sold, under capital gains. A stock split has no direct tax impact since there is no new issue of shares, only the face value changes.

Bonus Issue vs Stock Split: Key differences explained

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Bonus Issue vs Stock Split: Key differences explained

Stocks

Bonus Issue vs Stock Split: Key differences explained

Bonus issues and stock splits may look similar but serve different purposes. While bonus issues reward shareholders by capitalising reserves, stock splits make shares more affordable and boost liquidity. Learn how each impacts investor value and what it reveals about a company’s growth.