Skip to Main Content
Corporate Finance, 5th Edition
book

Corporate Finance, 5th Edition

by Pierre Vernimmen, Pascal Quiry, Maurizio Dallocchio, Yann Le Fur, Antonio Salvi
December 2017
Intermediate to advanced content levelIntermediate to advanced
1024 pages
32h 22m
English
Wiley
Content preview from Corporate Finance, 5th Edition

Chapter 38 Share issues

There are no victories at bargain prices

The previous chapters have already begun our study of equity financing. This chapter analyses the consequences for the shareholder of a share issue (or capital increase). Capital increases resulting from mergers and acquisitions will be dealt with in Chapter 45.

Section 38.1 A definition of a share issue

1. A share issue is a sale of shares …

A share issue is, first of all, a sale of shares. But who is the seller? The current shareholder. The paradox is that the seller receives no money. As we shall see in this chapter, to avoid diluting his stake in the company at the time of a share issue, the shareholder must subscribe to the same proportion of the new issue that he holds of the pre-existing shares. Only if he subscribes to more than that is he (from the standpoint of his own portfolio) buying additional control; if less, he is selling control.

Up to now, we have presented market value as a sanction on the company’s management, an external judgement that the company can ignore so long as its shareholders are not selling out and it is not asking them to stump up more money. A share issue, which conceptually is a sale of shares at market value, has the effect of reintroducing this value sanction via the company’s treasury, i.e. its cash balance. For the first time, market value, previously an external datum, interferes in the management of the company.

2. … the proceeds of which go to the company, and ...

Become an O’Reilly member and get unlimited access to this title plus top books and audiobooks from O’Reilly and nearly 200 top publishers, thousands of courses curated by job role, 150+ live events each month,
and much more.
Start your free trial

You might also like

Corporate Finance For Dummies

Corporate Finance For Dummies

Michael Taillard
Fundamentals of Corporate Finance, 4th Edition

Fundamentals of Corporate Finance, 4th Edition

Robert Parrino, David S. Kidwell, Thomas Bates, Stuart L. Gillan
Corporate Finance Theory and Practice, Third Edition

Corporate Finance Theory and Practice, Third Edition

Pascal Quiry, Maurizio Dallocchio, Yann Le Fur, Antonio Salvi
Corporate Finance: A Practical Approach, Second Edition

Corporate Finance: A Practical Approach, Second Edition

CFA Michelle R. Clayman, CFA Martin S. Fridson, CFA George H. Troughton

Publisher Resources

ISBN: 9781119424482Purchase book