10 Reasons Why Small Investors Stay Away From Rights Issue

Reasons Why Small Investors Stay Away From Rights Issue Woman investor expressing her feelings for not subscribing rights issue.

(8) Absence Of Clarifications About Major Queries Of Investors

It is one of the most unbeatable reasons why retail investors don’t purchase rights shares. Doing a business in a competitive world is not an easy task. A firm has to face several challenges during its lifetime.

Sometimes, a company may get affected by various negative consequences that may create hurdle in its growth path. These negativity are something not discussed by majority of companies.

They often prefer to stay silent on such critical issues. When these forms of companies go for rights issue, investors may ask for clarifications regarding such issues.

However, several companies may still don’t want to share complete information about such issues for various reasons. This hiding of true facts to certain extent from investors may create confusion among investors.

Therefore, serious doubts are raised about the worthiness of a given issue. Thus, investors refrain from purchasing rights shares in the issue.

[Read Also: 10 Limitations Or Drawbacks Of A Company’s Rights Issue]

(9) Irregularities Concerning Rights Issue

It is one of the most significant reasons why retail investors don’t purchase rights shares. Like every public issue, rights issue does carry the possibility of different irregularities. They are often raised by investors in the market from time-to-time.

Some of the common forms of irregularities found in rights issue include acquisition of shares by promoters, overvalued or undervalued price in rights issue, accounting irregularities, gaming the legal system by management, absence of open offer following promoter’s stake increase & many more.

These types of irregularities are often raised by investors in the secondary market. Therefore, doubts raised by investors of one company can adversely affect sentiments of investors from another company.

In such situations, shareholders may start looking the rights issue of even a good company in a doubtful manner. This will ultimately result in lesser subscription from small investors.

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  • Reasons Why Small Investors Stay Away From Rights Issue: Shutterstock

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