A downside of financing expansion by selling new shares of stock is that do so _____________.

Question

Quizplus · Accepted Answer

Selling new shares of stock dilutes ownership in the firm, as each new shareholder now owns a smaller percentage of the company. This can lead to a loss of control for existing owners and a decrease in their share of profits. While selling new shares does not necessarily incur higher financial risk or reduce the prosperity of the firm (in fact, it can provide funding for expansion), the dilution of ownership is a significant downside.

A Downside of Financing Expansion by Selling New Shares of Stock