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Demand and new issue of stock

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Is it true that the "flatter" or more nearly horizontal, the demand curve for a particular firm's stock, and the less important investors regard the signaling effect of the offering, the more important the role of investment bankers when the company sells a new issue of stock?

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// In order to write an expert opinion about the 'Demand Curve'; we have to first carefully analyze the situation. Here, we have to discuss the condition that , the "flatter" or more nearly horizontal, the demand curve for a particular firm's stock and the less important investors regard the signaling effect of offering the more important the role to investment bankers, when the Company sells a new issue of stock.//

Demand curve of a stock depicts the price- quantity relationship. The demand for a stock is dependant on many factors viz price, company profile, founder, past history, operational capacity, dividend policy etc. Steeper the demand curve, lower quantity of stock is demanded at higher price. Thus, corporate restore to stock split, to reduce the face value of stock thereby increasing the stock demand and liquidity. Flatter or more nearly horizontal demand curve indicates that the price of a stock remains range bound hence the quantity demanded for. The demand becomes perfectly elastic incase of a flat horizontal curve.

Such a flatter curve reflects that the price of the stock would remain the same irrespective of any change in market event. Any type of information viz. Public, insider or information embedded in financial statement would affect the price of the firm. Offering of such type of stock do not signal any change as the ...

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Ashish Sharma, MBA (IP)
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  • MBA (IP), International Center for Internationa Business
  • BBA, University of Rajasthan
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