Final answer:
A corporation's board of directors may prefer a stock split to a stock dividend as it can improve liquidity and affordability of the shares, attracting more investors without altering the equity structure significantly. Splits signal potential growth and do not dilute retained earnings as much as stock dividends.
Step-by-step explanation:
A corporation's board of directors might prefer a stock split over a stock dividend for several reasons. One of these is that a stock split can improve the stock's liquidity by making shares more affordable, which can attract a broader base of investors. Conversely, a stock dividend, which provides additional shares proportional to existing holdings, might not change the per-share price significantly or improve liquidity. Moreover, stock splits often carry the message to the market that the company expects future growth, which can be a positive signal to investors. Stock splits also do not impact the equity structure to the same extent as stock dividends may, which would allocate part of the retained earnings to the shareholders' equity, reducing the amount available for reinvestment in the company's growth.
Issuing stock allows a company to raise financial capital for expansion, increases its visibility in financial markets, and does not require repayment like loans do. However, placing stock is expensive and requires compliance with governing bodies, such as the Securities and Exchange Commission (SEC), and the expertise of professionals such as investment bankers and attorneys.