Pre-Emptive Rights – A Theoretical and Empirical Examination

Haar, L and Gregoriou, A (2025) Pre-Emptive Rights – A Theoretical and Empirical Examination. Review of Law & Economics. ISSN 2194-6000

Text PRE-EMPTIVE RIGHTS- A THEORETICAL AND EMPIRICAL EXAMINATION.pdf - Accepted Version Access Restricted until 6 May 2026. Download (638kB)

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.

Item Type:	Article
Uncontrolled Keywords:	38 Economics; 3801 Applied Economics; 3803 Economic Theory; 1401 Economic Theory; 1402 Applied Economics; 1801 Law; Economics; 3801 Applied economics; 3803 Economic theory
Subjects:	H Social Sciences > HF Commerce > HF5001 Business
Divisions:	Liverpool Business School
Publisher:	De Gruyter
Date of acceptance:	10 December 2024
Date Deposited:	09 May 2025 10:06
Last Modified:	09 May 2025 10:15
DOI or ID number:	10.1515/rle-2024-0106
URI:	https://researchonline.ljmu.ac.uk/id/eprint/26329

View Item