PRIVILEGED SUBSCRIPTIONS

407

tunities to those who would like to acquire more than their preemptive
rights entitle them to subscribe for. Large proportions present problems
of disposition of a ilsour" stock issue.

Underwriting Privileged Subscriptions.—The proceeds from privileged
subscriptions are frequently spent for expansion before they are received.
At least the corporation has often made commitments before the actual cash
is in hand. Although, at the time the new financing is planned,, favorable
results are anticipated, many things may happen before the stock is actually
sold to upset all plans and produce failure, Irrespective of the business pros-

DETROIT EDISON' Co. RALES OF NEW ISSUES

Sold to

Percentage

Year
of holding offered
Price
issue*
Stock-
Under-
General

holders*
writers*
public*

1911
25
$100
$ 1,500
$ 1,497

S 2

1913
30
100
3,150
3,073

76

1916
15
100
2,941
2887

73

1917
15
100
3,386
3,331

55

1920
20
100
5,532f

5,532

1923
25
100
8,791
5,249
$3,542

1924
25
100
11,151
9,665
1,486

1925
10
100
7,101
7,013

148

1926
10
100
8,092
7,978

114

1928
m
100
15,068
15,013

55

1929
20
100
21,177
21,145

32

* 000 omitted.
t Stockholders waived right to purchase in 1920.
pects of a particular corporation, a marked general market slump always
affects privileged subscriptions adversely. When a corporation wishes to
ensure its receipt of cash at the time it is needed, the management has the
subscription underwritten, even though it appears that the stockholders will
gladly subscribe for all stock offered. The underwriting syndicate supplies
insurance service only in such cases, since the corporation expects to sell its
stock directly to its holders of outstanding stock. Bankers who are willing
to undertake such underwriting risks should be in at least as good a position
to forecast the security markets as is the management of the corporation
wishing to issue the stock. Even bankers' opinions of the financial future
are not infallible, and sizable losses are sometimes absorbed by the under-
writing syndicate. However, the willingness or unwillingness of bankers to
underwrite privileged subscriptions should give corporate managements
some test of the probable success of their stock offering. Bankers' reactions
might reflect not only the details of the plan proposed, but the timing of the
offer of new stock.