Dilution of Proportionate Ownership

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



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.

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