It is possible to accumulate equity capital by issuing new shares.
The company can, for instance, increase their share capital by circulating additional shares. This means the number of shares is increased, which in turn reduces the proportion of the shares held by the previous shareholders. The “old” shareholder’s share is “diluted”, and this dilution causes the shares to decrease in value. To avoid this, first-time shareholders are usually granted a subscription right to new shares. This follows a very basic principle: the more shares a person already has, the more subscription rights they receive. This dilution protection means the company can ensure that first-time shareholders do not have to see the percentage of their equity interest diluted as new shares are issued. The issue of subscription rights reduces the theoretical value of a share by this amount. Should the price of a share change, other effects are certainly possible. These subscription rights are booked to the shareholder’s custody account.
Generally speaking, these subscription rights can, much like shares, also be traded on the stock markets. It is up to a company whether it decides to trade these subscription rights. Ultimately, there are two ways shareholders can use these rights. If they wish to purchase more shares, they can exercise their subscription rights and purchase new shares at the issue price. If they do not wish to purchase any new shares, they are often able to sell their subscription right to another investor via the stock market. A shareholder will usually have to pay fees to sell these rights. They are also subject to fluctuations in supply and demand. A shareholder who does not exercise a subscription right may have to contend with a decline in price, though this usually isn’t for very long.