A bonus issue is a corporate action in which a company gives existing shareholders additional shares for free in proportion to what they already own.
What changes and what does not
In a bonus issue, the firm converts reserves into share capital. The number of shares outstanding rises, but shareholders do not inject new cash into the firm.
That means a bonus issue:
- changes the share count,
- changes per-share measures mechanically,
- does not by itself create new real wealth for shareholders.
If every shareholder receives new shares in proportion to current holdings, ownership percentages stay the same.
Economic interpretation
Because total equity value is being spread over more shares, the share price typically adjusts downward after the issue. This is similar in spirit to a stock split, though the accounting treatment differs.
Economists and investors therefore focus on signaling and liquidity effects:
- management may be signaling confidence,
- lower post-issue share prices may improve trading accessibility,
- but the action does not change fundamentals by itself.
Contrast with related corporate actions
Unlike a rights issue, a bonus issue does not raise fresh capital from shareholders. Unlike dilution from selling new shares to outsiders, a bonus issue leaves each holder’s ownership proportion unchanged.