stock dilution

Stock dilution, also known as a stock split, is when a company increases the number of outstanding shares by issuing more shares. This reduces the value of each share, but it can also make the stock more affordable and thus can increase demand.

Causes of Stock Dilution:

  • Company issues new shares to raise capital for expansion and investment in new projects.
  • Employees exercise stock options granted to them as part of their compensation packages.
  • Mergers or acquisitions where new shares are issued to facilitate the transaction and integrate the acquired entity.

Benefits of Stock Dilution:

  • Raising capital for company growth, allowing for research and development, market expansion, or debt reduction.
  • Attracting new investors by diluting ownership stake, potentially broadening the shareholder base and increasing liquidity in the market.
  • Potential short-term boost to share price if new shares are issued above the current market price, signaling confidence in the company's future prospects.

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