Problem: It is frequently stated that the primary purpose of the preemptive right is to allow individuals to maintain their proportionate share of the ownership and control of a corporation.
Question 1: How important do you suppose this consideration is for the average stockholder of a firm whose shares are traded on the New York or American Stock Exchanges?
Question 2: Is the preemptive right likely to be of more importance to stockholders of publicly owned or closely held firms? Explain.
Question 3: Is a firm likely to get a wider distribution of shares of it sells new stock through a preemptive rights offering to existing stockholders or directly to underwriters?
Question 4: Why would management be interested in getting a wider distribution of its shares? Hide problem.