IDEAS home Printed from https://ideas.repec.org/a/bpj/rlecon/v21y2025i1p5-43n1004.html
   My bibliography  Save this article

Pre-Emptive Rights – A Theoretical and Empirical Examination

Author

Listed:
  • Haar Lawrence

    (Department of Accounting, Economics & Finance, 1947 University of Brighton , Brighton, USA)

  • Gregoriou Andros

    (School of Business & Law, Liverpool John Moores University, Liverpool, UK)

Abstract

The premise for protecting shareholders from dilution, a loss of wealth and control through providing pre-emptive rights, is that agents may not act in the interests of principals. Proponents of pre-emptive rights emphasize protecting the democratic nature of the limited liability corporation while opponents argue that professional management have greater insights regarding capital formation and growth opportunities. From a financial theory perspective, the argument for protection rests upon whether the costs of debt and of equity reflect capital structure as well as the potential for changes, as ultimately reflected in share prices. Applying financial theory and statistical analysis, we explore if shareholders need protection from dilution, or if the risks are already capitalised into share prices. Our findings and insights cast doubt on the benefits of such protection and the legal basis for compensation.

Suggested Citation

  • Haar Lawrence & Gregoriou Andros, 2025. "Pre-Emptive Rights – A Theoretical and Empirical Examination," Review of Law & Economics, De Gruyter, vol. 21(1), pages 5-43.
    • Handle: RePEc:bpj:rlecon:v:21:y:2025:i:1:p:5-43:n:1004
    DOI: 10.1515/rle-2024-0106
    as

    Download full text from publisher

    File URL: https://doi.org/10.1515/rle-2024-0106
    Download Restriction: For access to full text, subscription to the journal or payment for the individual article is required.
    File URL: https://libkey.io/10.1515/rle-2024-0106?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    More about this item

    Keywords

    dilution; loss of control; pre-emptive rights; share issuance;
    All these keywords.

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bpj:rlecon:v:21:y:2025:i:1:p:5-43:n:1004. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Peter Golla (email available below). General contact details of provider: https://www.degruyterbrill.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.