Question

Which of the following statements about common stock is false?

Stockholders exercise control over the company by voting for board members.

Common stockholders are the owners of for-profit corporations.

The preemptive right gives current stockholders the right to purchase any new shares issued by the company.

In the event of bankruptcy and liquidation, shareholders often receive nothing.

The claim of shareholders on the cash flows of the firm is limited to the dividends that they receive—i.e., they have no claim on a business’s residual earnings.

Answer 1

e.The claim of shareholders on the cashflows of the firm is limited to the dividends that they receive - i.e they have no claim on a business' residual earnings.

The above statement is false, since common stock holders are owners of the corporation (this make statement b true), they are having a right over the business's residual earnings.

The stockholders do elect the board of directors, who look over the day to day affairs of the business.

Since the commonstock holders are the last ones to receive anything in case of bankruptcy and liquidation, they often receive nothing.

Preemptive right does give the current stockholders the right to purchase any new shares issued by the company.