Understanding Cash Capital Increase: Will the Stock Price Soar or Keep Falling?

Cash capital increase may sound very professional, but in reality, it concerns every investor’s wallet. When a company issues new shares to raise funds, is it a positive or negative signal for the stocks we hold? Today, let’s clarify this matter.

What exactly is a cash capital increase?

Simply put, a cash capital increase is when a company issues new shares to raise funds. It sounds good—companies want to expand or invest—but once new shares are issued, the ownership percentage of existing shareholders is diluted—that’s what investors worry about most.

Why does a company do this? Mainly to:

• Expand production scale
• Invest in new technologies or projects
• Repay debts and improve financial structure
• Respond to market changes

So, what is the process of a cash capital increase? Usually, it involves these steps: the company formulates a capital increase plan → issues a notice to shareholders → shareholders decide whether to participate → payment is made → the company reviews and issues new shares. The entire process involves multiple steps, and it may take some time from decision to receiving the new shares.

Will the stock price go up or down? The key depends on three factors

Don’t believe the saying “cash capital increase = stock price rise,” that’s a misconception. In reality, the market’s reaction depends entirely on how investors perceive it.

Situations that may lead to a decline in stock price:

• A surge in new share supply exceeds market demand, putting pressure on the stock price
• Investors worry that the capital increase will dilute profits or harm the company’s earnings ability
• Existing shareholders’ ownership is diluted, leading to market pessimism

Situations that may push the stock price higher:

• Strong demand for new shares, with enthusiastic subscription
• Investors believe the funds will help the company create new opportunities
• Major shareholders actively participate, maintaining the existing ownership structure

The most critical factor is: market confidence in the company’s future. If everyone is optimistic about the company’s prospects, news of a capital increase can actually boost the stock price; if the market is pessimistic, no matter how much financing is done, the stock price may not rise.

Case studies: understanding how big companies play

Tesla’s capital increase story

In 2020, Tesla announced a $2.75 billion new share issuance at $767 per share, aiming to raise funds for factory construction and expansion. Normally, issuing new shares should depress the stock price. But at that time, Elon Musk was extremely popular, and the market was full of expectations for Tesla’s future—investors believed this money would be used for R&D and capacity expansion, greatly increasing the company’s value, and the stock price actually rose.

This case shows: whether a capital increase is good or bad fundamentally depends on market expectations of the company’s future.

TSMC’s capital increase phenomenon

At the end of 2021, TSMC announced a cash capital increase plan. When the news broke, the stock price rose. Why? Because TSMC is a leader in global semiconductor foundry, with steady performance and operations. Major shareholders had full confidence and actively participated in the increase. The new shares weren’t sold off; instead, the market saw it as a signal of continued growth.

TSMC used the raised funds for R&D and new factory construction, effectively preparing for future growth. For investors, this is a clear positive signal.

The pros and cons of cash capital increase that investors must understand

Advantages:

• Helps the company raise large amounts of capital for expansion and innovation
• Improves financial structure, reduces debt burden
• Sends a positive signal, boosting market confidence

Risks:

• New share issuance dilutes existing shareholders’ ownership and rights
• Market reactions are unpredictable, possibly pushing the stock price down
• The process involves fees and issuance costs, increasing financing costs

More painfully: if the issuance price is set too low (below market price), the company’s value is effectively discounted, and the loss ultimately falls on shareholders.

When can you receive the new shares?

Participating in a cash capital increase doesn’t mean you get the new shares immediately. The entire process involves:

• The company setting a subscription deadline
• Shareholders making payments
• The company completing calculations and procedures
• Stock exchange approval (for listed companies)
• Shareholder registration

Usually, it takes several weeks to a few months before the new shares are credited. During this waiting period, stock prices may fluctuate significantly, so don’t rush.

Flowchart of the cash capital increase process

The full process of a cash capital increase is as follows: company decision → announcement of the increase → shareholder subscription period → funds received → approval and accounting → new shares issued → listed for trading.

Every step is important; any delay can affect the overall timeline.

What should investors do?

When you see a cash capital increase announcement, don’t rush to buy or sell. Instead, ask yourself three questions:

1. What is the company using this money for? Is it for R&D or debt repayment? The purpose determines the potential return.
2. How are the company’s fundamentals? Is profitability stable? What is the industry outlook?
3. What is the attitude of major shareholders? If large shareholders are actively subscribing, it indicates confidence; if not, be cautious.

A cash capital increase itself is neither inherently good nor bad; the key lies in the company’s execution and market confidence. Investors need to consider management performance, industry trends, economic environment, and policy changes—don’t just focus on the “increase” signal.

Doing homework and understanding thoroughly is the right approach for wise investing.