© 2000 John Petroff

B- Common stock issue

Issuing new common shares is necessary anytime the accumulation of retained earnings is insufficient to keep up with corporate expansion goals. But, except for a small number of household corporate names and a few emerging technology superstars (i.e. a few hundred corporations among millions of less known companies in the United States), selling newly issued stock is difficult. The corporation is asking an investor to assume the full risk of the company. The offer can be enticing only if the investor perceives the stock price as a bargain. Once again, the importance of projecting an image of value to outsiders comes back as a determining factor in corporate strategy.

See review questions Q-12B.1 and Q-12B.2.

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