Question

1. In a recent meta study authors founds that the price of the company stock rise when the shareholders agreed with the board to issue more common stock shares.

               

                a.            Why do you think this happened?

                b.            What in the decision process about the stock issuance could have provoke the price of                                    the stock to go down when announcing the issuance of the new shares.

Answer 1

A) the price of the company stock rise when the shareholders agreed with the board to issue more common stock shares.This happen when the company announce new stocks issuing as a means to boost revenue then it become positive. It may also be doing so to raise money for a new venture, whether that's investing in a new product, a strategic partnership, or buying out a competitor. If a company announce common stocks to fulfill this needs it's results in rise of company stocks.

B) the stock to go down when announcing the issuance of the new shares this occurs because many existing shareholder's don't view dilution in a very good light. After all, by adding more shareholders into the pool, their ownership of the company is being cut down. That may lead shareholders to believe their value in the company is decreasing. In certain cases, investors with a large chunk of stock can often take advantage of shareholders that own a smaller portion of the company.