Why does a company issue bonus shares?

a) A high denomination share is not easily tradable on the market! ppl would like to trade in lower denominations of good shares. So a stock split helps in increasing the liquidity of the share.

b) Generally, the company thinks that the valuation of the share might be better in the future and it splits the share so that it is tradable. It is a virtuous cycle - lower denomination vs price rise :-). So it is a confidence building measure in the stock by the company.

c) In the short run, the valuation might increase (more speculative than real)! but anyways, stock market is kind of speculative ;-)

d) Another reason (similar to stock buyback) could be the tax benefits. Shareholders can use the capital loss due to reduced stock price to set off the capital gains.