What is the effect on a company's balance sheet of issuing bonus shares?

Issuing bonus shares, which involves distributing additional shares to existing shareholders without raising capital, affects a company's balance sheet by increasing the number of shares outstanding while reducing retained earnings. Specifically, the amount transferred from retained earnings to the share capital account reflects the value of the newly issued shares. Overall, the total equity remains unchanged, but the composition shifts between retained earnings and share capital. This can enhance liquidity and make shares more accessible to a broader investor base.