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

Question

Quizplus · Accepted Answer

The preemptive right is a corporate right that gives current shareholders the right to purchase additional shares of a company's stock before it is offered to the public. This protects the current shareholders from having their ownership interests diluted by the issuance of new shares to the public. Therefore, it is important to shareholders because it maintains their percentage of ownership in the company.

The Preemptive Right Is Important to Shareholders Because It