If a firm's stockholders are given the preemptive right, this means that a group of stockholders can call for a meeting to replace the management. With¬out the preemptive right, dissident stockholders would have to seek to oust management through a proxy fight.

Question

Quizplus · Accepted Answer

The statement is incorrect. Preemptive right allows stockholders to maintain their percentage ownership of the company by purchasing additional shares before they are offered to the public, but it does not grant the right to replace management or call for a meeting. The process of replacing management usually involves a proxy fight or a vote of no confidence.

If a Firm's Stockholders Are Given the Preemptive Right, This