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Most companies are always in need in additional capital to grow. Why can't companies just issue...

Most companies are always in need in additional capital to grow. Why can't companies just issue more common shares?

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Answer #1

Issue of common stock is good if they have good investment opportunities. But it has following disadvantages:

1. Cost of issuing common shares is very high. Company should incur high flotation cost and underwriting commission.

2. Payments of dividend is not tax deductible because dividends are appropriation of profits.

3. If new common shares are issued, they will reduce earnings per share of the company.

4. New common shares will reduce voting power of the existing shareholders.

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