If a stockholder fails to subscribe to a rights offering, how is their interest in the company affected?

When a stockholder fails to subscribe to a rights offering, their ownership stake in the company becomes diluted, leading to a reduction in their interest. A rights offering allows existing shareholders the opportunity to purchase additional shares at a specified price, usually at a discount to the current market price. When a shareholder does not take advantage of this opportunity and chooses not to buy additional shares, they forfeit the chance to maintain their proportional ownership in the company.

As the company issues new shares to those who do participate in the offering, the total number of shares outstanding increases. Therefore, the stockholder's percentage of ownership decreases because their number of shares remains the same while more shares are introduced into circulation. This dilution can also impact the stockholder's voting power and potentially their share of future profits if the company issues more shares that lead to increased earnings. Consequently, failing to subscribe to a rights offering results in a reduced ownership interest in the company.