ACCA Advanced Financial Management (AFM) Practice Exam

In a seasoned offering, how are investors typically characterized?

1. Only new investors are allowed

2. Current shareholders are prioritized

3. Limited to institutional investors

4. Open to any investor

The correct answer is: Current shareholders are prioritized

In a seasoned offering, the process involves companies that are already publicly traded issuing additional shares to raise capital. This differs from an initial public offering (IPO), where shares are offered to the public for the first time. In this context, current shareholders are typically prioritized in a seasoned offering through mechanisms like rights offerings, where existing investors are given the right to purchase additional shares before new investors are allowed to buy in. This is to ensure that existing shareholders have the opportunity to maintain their proportional ownership and prevent dilution of their stake in the company. Such prioritization strengthens the relationship between the company and its current investors by demonstrating that their interests are valued. Other options imply restrictions and limitations that do not align with the characteristics of seasoned offerings, which are designed to allow existing shareholders significant participation when new shares are issued.