Final answer:
When a corporation issues additional shares in proportion to the current holdings of shareholders, it's known as a stock dividend. This is often done to reward shareholders without spending cash and can lead to capital gains for the shareholders.
Step-by-step explanation:
A corporation that distributes additional shares of its own stock with respect to existing shares already held by shareholders has made a stock dividend. A stock dividend is when a company issues additional shares to existing shareholders in proportion to their current holdings.
This action usually takes place instead of a cash dividend and typically reflects a company's desire to reward shareholders without reducing its cash balance. Issuing a stock dividend can also be a sign of the company's commitment to reinvesting its profits to further grow the company.
Shareholders benefit from stock dividends as they receive more shares, which could potentially increase in value, leading to capital gains. However, unlike cash dividends, stock dividends do not provide immediate cash flow to shareholders.
The company may choose this method of rewarding shareholders if it wants to preserve cash for other investments or operational needs.