Small Stock Dividend, Large Stock Dividend, or Stock Split: What Happens to Equity?
All three increase shares outstanding, but the equity-account mechanics are different.
Small stock dividend
A small stock dividend generally transfers an amount based on the fair value of shares issued from retained earnings into paid-in capital under the applicable framework.
Large stock dividend
A large stock dividend generally uses par-value concepts rather than fair value for the equity transfer.
Stock split
A stock split increases shares outstanding and reduces par value per share proportionately without ordinarily transferring retained earnings.
EPS effect
Stock dividends and stock splits require retroactive share-count treatment in EPS calculations under applicable rules.
The takeaway
Small stock dividends generally use fair-value concepts, large stock dividends generally use par-value concepts, and stock splits typically change share counts without transferring retained earnings.
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FAQ
Does a stock split normally reduce retained earnings?
No.
Do stock dividends increase shares outstanding?
Yes.
Do stock splits affect EPS share counts retroactively?
Yes under applicable rules.