A bonus issue of shares, also known as a stock dividend, is a type of dividend paid by a company in the form of additional shares instead of cash. Such dividends are created by a company out of retained earnings or revaluation reserves, and are thus not paid for by cash outlay. When a company issues a bonus share, the company does not increase its net assets, but instead it increases the amount of (nominal) share capital.

Bonus share issues represent a simple, cost-effective and tax-friendly way of providing a return to existing shareholders. Such shares can be a blessing for loyal investors, as the company may still profit from the growth of the additional stock without paying the associated costs of additional equity issuance, such as broker fees and the cost of prospectuses. In the case of a small company, this is especially important since it will help maintain the listed status of the company.

In addition, bonus shares can be used to bolster a company's market capitalization. Instead of spending cash to buy back shares, a firm can issue bonus shares to increase the number of outstanding shares, in doing so boost its market capitalization. This can potentially attract investors, improve liquidity and enrich the company’s valuation.

For shareholders, bonus issues explore the options of selling the new shares and leveraging other opportunities they represent. Bonus issues offer shareholders the possibility of better balanced portfolios and the opportunity to harvest tax benefits through the sale of bonus shares.

Finally, bonus issues are used to boost investor confidence in a company and its potential. bonus shares may act as a sign to potential investors that the company is doing well and hence give them the confidence to invest in the company. This may lead to capital inflow and additional liquidity for the company.

In short, bonus issue of shares can be beneficial for investors, companies and shareholders alike. The additional shares can improve the liquidity of the company and its market capitalization, while providing a cost-effective means of returning capital to shareholders. Moreover, bonus issues can be an important tool in boosting market confidence in the company and its potential.