How does stock dilution impact a shareholder’s total holding?

Question

Suppose company ABC has 100,000 shares at $10 each, and I have 10% of those shares, so own 10% of the company. I understand that a stock split would create 200,000 shares at $5 each, but the value of my holding – both in dollar value and percentage – doesn’t change.

How does stock dilution happen then, where I own a smaller percentage of the company without my selling any assets (obviously, the dollar value of my holdings would change based on the market)?

In: 5

Answer 1

While companies primarily sell shares to the public during their IPO, companies can do secondary offerings. Additionally, the offer stock options, etc. to employees that convert to new shares outstanding.