Watered stock is an asset with an artificially-inflated value. The term is most commonly used to refer to a form of securities fraud common under older corporate laws that placed a heavy emphasis upon the par value of stock.
What is ‘Watered Stock’
Stock that is issued with a value much greater than the value of the issuing company’s assets. Watered stock can be caused by excessive stock dividends, overvalued assets and/or large operating losses.
Explaining ‘Watered Stock’
Assets can be overvalued for several reasons, including inflated accounting values or excessive issue of stock (through a dividend or employee stock-option program). This term is thought to originate from ranchers who would feed their cattle large amounts of water before market day to make them heavier, fetching a price higher than their worth.
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- The success of industrial mergers – academic.oup.com [PDF]
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