History and theory
Selling new shares to raise money dates back to the Dutch East India Company in 1602, but why announcements depress prices was explained in 1984 by Stewart Myers and Nicolas Majluf: managers prefer to issue stock when they think it is overvalued, so investors read an offering as a warning sign. Asquith and Mullins (1986) found US share prices fell about 3% on average at announcement.
Types
A rights offering gives existing shareholders pro-rata rights to buy new shares, and the price adjusts on the ex-rights date. A public offering sells to anyone; a third-party placement sells to selected investors or partners. New shares are usually priced at a discount, and the larger share count dilutes EPS.
How to read one
An issue funding growth can be good news, while one to repay debt or cover running costs often signals strain. Don't confuse it with a bonus issue, which raises no cash, and check the stated use of proceeds and the size relative to market cap.
FAQ
- Is a capital increase bad news?
- Prices often dip short term, but depending on how the money is used it can pay off long term.
- What is the ex-rights date?
- The day the right to new shares detaches, when the price adjusts technically for the larger share count.
Sources reviewed: 2026-10-26
References
- 상법 제416조–제432조 (신주의 발행).
- Myers, S. C., & Majluf, N. S. (1984). Corporate financing and investment decisions when firms have information that investors do not have. Journal of Financial Economics, 13(2), 187–221.
- Asquith, P., & Mullins, D. W. (1986). Equity issues and offering dilution. Journal of Financial Economics, 15(1–2), 61–89.