INTERVIEW QUESTIONS FINANCIAL MANAGEMENT DIVIDEND DECISION DETAILS

Question: State the disadvantages of stock dividend for company and for investors.

Answer: A. For Company
1. Issue of bonus shares leads to an increase in the capitalisation of the corporation.
2. Issue of bonus shares results in more liability on the company in respect of future dividends.
3. It prevents new investors from becoming the shareholders of the company.
4. Control over the management of the company is not diluted and the present management may misuse its position.
B. For Investors
1. Some shareholders prefer cash dividends instead of bonus shares. Such shareholders may be disappointed.
2. Issue of bonus shares lowers the market value of existing shares too.

A. For Company
1. Issue of bonus shares leads to an increase in the capitalisation of the corporation.
2. Issue of bonus shares results in more liability on the company in respect of future dividends.
3. It prevents new investors from becoming the shareholders of the company.
4. Control over the management of the company is not diluted and the present management may misuse its position.
B. For Investors
1. Some shareholders prefer cash dividends instead of bonus shares. Such shareholders may be disappointed.
2. Issue of bonus shares lowers the market value of existing shares too. Source: CoolInterview.com

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