Why Does Dilution of Equity Take Place?

[alexx]

What makes firms prefer equity dilution over alternative ways to finance their activities? Firms can create new stocks in order to get capital, finance mergers and acquisitions, pay bonuses to staff and so forth. The reason of dilution of equity consists in an increase of the number of outstanding stocks, as it may result in a decrease of the ownership stake of the current stockholders. It is necessary for investors to find out what is the purpose of using the new money in the case of dilution of shares.