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Given that failure to pay dividends can not cause bankruptcy, but that additional stockholders share in...

Given that failure to pay dividends can not cause bankruptcy, but that additional stockholders share in profits/control of the firm, do you think it is generally wise for a firm to issue new stock?

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Answer #1

Issuing new stock gives shareholders a control over the company. The company can issue new funds , the sources of funds are debt, equity and preference capital.

Issuing debt is cheap and does not dilute ownership in the company.A company can also use it's retained earnings as it is cheaper than issuing new stock.

If a firm already has too much debt in it's balance sheet , then they should avoid raising additional debt. Then issuing equity would be a good idea.

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