Does the issue of new ordinairy shares reduce the value of exising shares?

Answer 1

It will reduce your stake in the company, but not the value of your stake.

If there were 1000 shares issued, and you had 100 shares you would have a 10th stake in the company. If there was a new issue of e.g. 500 shares you would then own a 15th of the company. The new shares would be sold to new shareholders (or possibly offered for sale to existing share holders) putting more money into the company.

E.g. if the original company was worth £1000, your shares would be worth £100. If another 500 shares were issued and sold for £1 the company would be worth £1500. So although you now only own 15th of the company, your share is still worth £100

Often when new shares are issued they are either issued as a rights issue or a bonus issue.

A rights issue will give existing share holders the opportunity to buy the new shares thus maintaining their existing stake in the company.

A bonus issue is where new shares are issued (not sold), and given to the existing shareholders in proportion to what they already own. This is used when more investment is not needed in the company. In this case you would then own 150 shares (100 + 50), so you would still own a 10th of the company (150/1500), and your 150 shares would still only be worth £100.

Hope this helps.

Answer 2

No, it does not reduce the value (because value of a stock is basically determined by what someone will pay for it), but it does reduce how much of a percentage of the company you own. If you owned 100 shares of a company that had 1000 shares, you owned 10% of the company. If the company then issued 1000 more shares, you only own 5% of the company.

If many people are still willing to pay the same price for a stock that issued new shares, then the price will not fluctuate too much.

Answer 3

Yes. A new issue of shares does not make the company anymore valuable. The money has to come from someplace and that someplace is the shareholders.

Answer 4

you bet it does