Final answer:
A corporation may issue a stock dividend to retain cash for investment or expansion, thus enabling reinvestment of profits without affecting its cash reserves. It can signal confidence in future growth and enhance the firm's visibility in financial markets, albeit costing in terms of legal and regulatory expenses.
Step-by-step explanation:
A corporation might prefer to issue a stock dividend rather than a cash dividend for several reasons. One primary reason is that this allows the company to retain cash that can be used for further investment or expansion.
Instead of paying out cash, the company distributes additional shares to shareholders, thus maintaining its cash reserves for other strategic uses. Reinvestment of profits is critical for the growth of the company, and issuing stock dividends still rewards shareholders without depleting the company's cash.
Moreover, issuing stock dividends can also be seen as a commitment to future growth and confidence in the company's profitability, which can help increase its visibility in the financial markets. It is a way to reward shareholders without the immediate financial outlay.
However, it's important to note that issuing and placing stock requires expertise and involves substantial costs in terms of fees for investment bankers and attorneys, as well as compliance with reporting requirements to government agencies like the SEC.