11 Personal Benefits Of Promoters From A Rights Issue

Personal Benefits Of Promoters From A Rights Issue Company promoter feeling confident of deriving personal benefits from a rights issue.

(8) Control Market-Wide Appetite For Equity

It is one of the most wonderful benefits associated with a typical rights issue. Every industry or sector has periods of hot & cold markets. During hot periods, market-wide appetite for equities is on its optimum levels.

Rights issue can provide a great means to control market-wide appetite for equity during such time. Simultaneously, money raised from existing shareholders can be used for the growth of the company.

Additionally, the stock of underlying company can become more volatile after the announcement of rights issue. This increase in volatility of stock before & after rights issue can bring further opportunities for traders.

Traders are willing to punt on the stock for predicting the most probable direction of stock after rights issue. If they are successful in doing so then perhaps they can generate huge wealth within no time.

Thus, promoters are likely to speculate in stock price before & after rights issue.

[Read Also: 10 Factors To Consider When Analyzing Promoter’s Stake Change]

(9) Seek More Control In Underlying Firm

It is one of the most important benefits associated with a typical rights issue. Business activities of a company are usually managed by the controlling shareholders. These controlling shareholders are usually in form of promoters or promoter groups.

But, it is not true in every case. Sometimes, other shareholders can also hold majority of shares in a given company.

In such a case, they may oppose the management decisions from time-to-time. Therefore, promoters may look for rights issue as an easy means to boost their shareholding.

Once they become major shareholder in a company, there decisions are less likely to be opposed. This business incentive is found to be highest when prior shareholding of promoters is somewhat low.

Thus, promoters can gain more control over the firm after the issue.

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  • Personal Benefits Of Promoters From A Rights Issue: Shutterstock

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