Dilution of Proportionate Ownership
This occurs when the firm sells stock through a general cash offer and new stock is sold to persons who
previously weren’t stockholders. For many large, publicly held firms this simply isn’t an issue, since there
are many different stockholders to begin with. For some firms with a few large stockholders it may be of
concern.
Eg. If Joe does not participate in the new issue, his ownership will drop. Notice that the value of Joe’s
shares is unaffected; but he will own a smaller percentage of the firm.