scrip issue

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The issue of new share certificates to existing shareholders to reflect the accumulation of profits in the reserves of a company's balance sheet. It is thus a process for converting money from the company's reserves into issued capital. The shareholders do not pay for the new shares and appear to be no better off. However, in a 1 for 3 scrip issue, say, the shareholders receive one new share for every three existing shares they own. This automatically reduces the price of the shares by 25%, catering to the preference of shareholders to hold lower-priced shares rather than heavy shares; it also encourages them to hope that the price will gradually climb to its former value, which will, of course, make them 25% better off. In the USA this is known as a stock split.

Subjects: Economics.

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