Answer to Question #320870 in Finance for Andrick Angel

Question

Why do investors prefer to invest in ordinary shares as opposed to fixed bonds? 10marks

Answer 1

Three characteristic benefits are typically granted to owners of ordinary shares: voting rights, gains, and limited liability.

Common stock, through capital gains and ordinary dividends, has proven to be a great source of returns for investors, on average and over time.

Companies also benefit from issuing shares in that they do not incur debt obligations, although they do forfeit some of the ownership's stake.

Voting Rights

The first is voting rights. Common shareholders can participate in internal corporate governance through voting. Ordinary shares provide a small degree of ownership in the issuing company. Stockholders have a certain amount of say in how the company is run and are allowed to vote on important decisions, such as the appointment of a board of directors. For each share of common stock owned, the stockholder gets one vote, so the stockholder's opinion becomes weightier when they own more shares.