Which of the following is a potential drawback of seasoned equity offerings?

Seasoned equity offerings involve existing public companies issuing additional shares to raise capital. One of the key drawbacks of this process is the potential dilution of existing shareholders’ ownership stakes. When new shares are issued, the total number of outstanding shares increases, which can lead to a decrease in the percentage of ownership that existing shareholders have in the company.

This dilution can also impact the earnings per share (EPS) metric, as profits are now distributed across a larger number of shares. Consequently, existing shareholders may find the value of their investment diminished, not only in terms of ownership percentage but also potentially in overall value if the market reacts negatively to the dilution. While there may be other benefits associated with seasoned equity offerings, such as increased liquidity or improved market perception, the dilution effect is a significant concern for investors who wish to maintain their proportional stake in the company’s equity.