Why is a company allowed to change the number of shares it’s divided into after its IPO?
If it were impossible to raise equity capital once a corporation has gone public, it may be impossible for it to expand if lenders have reached the prudential limits for lending to the corporation. This is highly constraining, and could lead to the company’s bankruptcy.
Does raising capital lower share prices? If we make the assumption that the share price is always equal to book value (this obviously is often violated in the real world), when it sells new shares, it gets cash equal to the number of shares. The result is that book value and market capitalisation increase by the same amount. However, this is somewhat short-sighted way of looking at it. The corporation may only be able to survive in the long term via issuing new equity.