Final answer:
The statement is true; stock dividends increase the number of outstanding shares and reduce the share price, which maintains the total market capitalization immediately following the dividend issuance.
Step-by-step explanation:
The statement that stock dividends will increase the total number of shares outstanding of the common stock of a company, and reduce stock price per share, therefore, don't change the company's total market capitalization is generally True. When a company issues a stock dividend, it distributes additional shares to existing shareholders according to their current holdings. This action increases the number of shares outstanding but does not add any real value to the company. Instead, it dilutes the stock value, adjusting the price per share downwards to reflect the higher share count; however, the overall market capitalization of the company should theoretically remain the same immediately after the dividend.
For example, if an investor owns 100 shares of a company, and the company issues a 10% stock dividend, the investor will then hold 110 shares. If the stock was trading at $100 per share before the dividend, the market value of the investor's shares was $10,000. Following the stock dividend, the price per share would commonly adjust to approximately $90.91 in recognition of the increased shares outstanding; resulting in the market value still hovering around $10,000, assuming the market has not re-evaluated the company differently since the dividend.