Bonus shares distribution refers to the issuance of additional shares to existing shareholders at no extra cost, based on the number of shares they already own. This process is typically executed by a company to reward shareholders, enhance liquidity, or improve the marketability of its shares.
In financial terms, bonus shares increase the total number of outstanding shares in circulation without diluting the overall value of existing shares. They represent a company’s retained earnings being converted into equity, effectively allowing companies to redistribute profits while preserving cash. This distribution can signal to investors that the company is performing well and has sufficient reserves.
The relevance of bonus shares lies in their impact on shareholder value and market perception. While the nominal value of shares may decrease due to the increase in total shares, the perceived value of the company may enhance. Additionally, bonus shares can attract more investors, resulting in increased trading activity and potentially improving the company’s stock liquidity.
