The preemptive right is important to shareholders because it
A) allows managers to buy additional shares below the current market price.
B) will result in higher dividends per share.
C) is included in every corporate charter.
D) protects the current shareholders against a dilution of their ownership interests.
E) protects bondholders and thus enables the firm to issue debt with a relatively low interest rate.

Question

Quizplus · Accepted Answer

The preemptive right allows current shareholders to maintain their percentage of ownership in a company by giving them the right to purchase additional shares before they are offered to the general public. This protects them against a dilution of their ownership interests.

The Preemptive Right Is Important to Shareholders Because It