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
Stock splits you’re talking about don’t effect your ownership, so yeah not that. But a company can always print more stock (like a government printing more money) in order to raise capital to expand the business, but obviously it also means anybody who owns some shares now own less of the whole pie. You would hope the business is making good financial decisions when it prints more stock, so that the company grows with good financial decisions. But it depends a lot on whose leading the company. The flip side is that governments will usually let companies print more stock whenever they want but if it seems like a pattern of abuse then it opens the laws up to embezzlement/defrauding investors cases.
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