Question

Discuss whether the stock market would be more or less efficient if public corporations issued fewer shares of stock.

Answer 1

If public corporations issued fewer shares of stock, the market would be less efficient. The reasons are:

There would be fewer number of shares outstanding resulting in fewer number of stockholders. The price of the share would also be high if the corporation is doing well. This will result in fewer number of transactions in the secondary market which will not help in efficient price determination.

If, on the other hand, the corporation has more number of shares, the price of the shares would be within the trading range and there would be more number of shares outstanding/shareholders. This would result in more number of transactions and better price determination.