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does an issue of bonus shares improve shareholder value?
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the bonus share also improves the liquidity however there is some difference in treatment. lets say a company has 100 shares, of $10 ea. the total capital of the compnay is 100*10 = 1000. assuming the company is doing well, its share is now available in the market for $100 ea. now lets say the company has made a profit of $1000 and this also gets factored into the price of $100. lets say the company decides to keep this $1000 kept as cash reserve and is not distributed as dividends.   in a share split say (1:1), the book value of each share is now reduced to $5, the number of shares increase to 200. the share capital stays at 200*5 = 1000. the market value of shares come down to $50 ea.   in a bonus share issue say (1:1), the funds $1000 are moved from cash reserve and transferred to share capital. the book value of each share will remain same as $10, the number of shares increase to 200. the share capital increases to 200*10 = 2000. the market value of shares come down to $50 ea.   so essentially from a liquidity point of view both give the same benefit. as to why some companies issue bonus and not a split, this is because of multiple reasons. a split beyond a point cannot be done, ie $10 can be split to $1 ea but it doesn't look good to make it $0.50. the other reason is there is adequate cash reserve and you want to convert this into share holders capital. having a larger share holders capital improves some of the health ratios for the compnay. at times bouns is used to play upon that one is getting something free.
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