MANAGEMENT

Detailed explanation-1: -When a company issues convertible debt, it means that debt holders who choose to convert their securities into shares will dilute current shareholders’ ownership.

Detailed explanation-2: -Dilution occurs when a company issues new shares that result in a decrease in existing stockholders’ ownership percentage of that company.

Detailed explanation-3: -The firm fully internalizes the reduction in the value of newly issued debt. But a higher risk of default also lowers the value of existing debt. This dilution of the value of existing debt is not internalized by the firm (debt dilution). The value of existing debt is also affected by the firm’s investment decision.

Detailed explanation-4: -Control dilution describes the reduction in ownership percentage or loss of a controlling share of an investment’s stock. Many venture capital contracts contain an anti-dilution provision in favor of the original investors, to protect their equity investments.