If a firm's stockholders are given the preemptive right, this means that stockholders have the right to call for a meeting to vote to replace the management.Without the preemptive right, dissident stockholders would have to seek a change in management through a proxy fight.

Question

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The statement is incorrect. The preemptive right allows existing stockholders to maintain their proportionate ownership in the company by allowing them to purchase new shares before they are offered to the general public. It does not give stockholders the right to call for a meeting to vote to replace management. That would require a different type of right, such as the right to call a special meeting or the right to act by written consent.

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