Bonus shares
In one sentenceNew shares the company distributes free to its shareholders in proportion to their holdings, by transferring part of retained earnings or reserves to capital without paying cash.
Simply put
The shareholder gets more shares but their ownership percentage does not change, and total equity stays the same: an amount simply moves from retained earnings to capital.
Because the number of shares increases while the company's value has not changed, the share price theoretically falls in the same proportion.
Worked example
A company with 4,000,000 shares at a nominal value of 10 SAR and a market price of 50 SAR granted one free share for every 4 shares.
New shares4,000,000 ÷ 4 = 1,000,000 shares
Transferred from retained earnings to capital1,000,000 × 10 = 10,000,000 SAR
Number of shares after the bonus4,000,000 + 1,000,000 = 5,000,000 shares
Theoretical price after the bonus = 50 × 4 ÷ 540 SAR
Don't confuse it with
Stock splitA split divides the share and reduces its nominal value without transferring any amount to capital.