Why Bonus share reduce price of share when it does not affect the face value of stock.

If bonus shares are funded from reserve funds and the face value of the share remains unaffected, why does it reduce the price of the share?

Companies issue bonus shares to encourage retail participation and increase their equity base. 

When price per share of a company is high, it becomes difficult for new investors to buy shares of that particular company. Increase in the number of shares reduces the price per share.

 But the overall capital remains the same even if bonus shares are declared.

That’s rule of market reduce the price as per ratio of bonus, That’s apply in whole world.

However, companies in general like to use bonus issues as a statement of their strong fundamentals going forward. It reflects their capability of servicing their increased capital. 

Companies also use bonus shares to improve participation and liquidity in their company.

While the issue of bonus shares increases the total number of shares issued and owned, it does not change the value of the company.

 Although the total number of issued shares increases, the ratio of number of shares held by each shareholder remains constant.

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