Bonus shares increase a company's market cap. When a company's market cap increases it could deter institutional investors from buying the company's shares as the company's new market cap may reflect it as fully valued. These investors value the company based on its market cap, not based on the share price of the share. Bonus share help to improve the liquidity to make the shares more affordable to the retail investors.
In a stock split the market cap remains the same.
In bonus shares, the EPS is adjusted post issue according to the number of bonus shares issued. However, the percentage of the EPS against the par value of the share is reduced. Always remember that institutional investors value a company based on its EPS as well.
In a stock split, the EPS is adjusted post split but its percentage against the par value of the stock remains unchanged.
It sometimes baffles me that after a bonus issue, a company announces a share buy back. Then why issue the bonus shares in the first place?
There must be a reason why in the US, there are no bonus shares, only stock split and reverse split.
Just my two cents worth.
No comments:
Post a Comment