Underissue: Definition, Causes, and Consequences

Underissue refers to a situation where the total amount of securities issued by a company exceeds the total amount of securities that have been sold or subscribed by investors. In other words, it means that the company has issued more securities than it has actually sold or raised funds from.

For example, if a company issues 100 shares of stock but only sells 80 of them to investors, then there are 20 shares of underissue (i.e., the difference between the total amount of securities issued and the total amount of securities sold).

Underissue can occur for a variety of reasons, such as:

1. Over-optimism: The company may have overestimated the demand for its securities and issued more than it could sell.
2. Poor market conditions: If the market is not favorable for the company's securities, it may be difficult to sell all of the issued shares, leading to underissue.
3. Lack of investor interest: The company may have issued too many securities, which can lead to a lack of investor interest and difficulty in selling all of the issued shares.

Underissue can have negative consequences for the company, such as:

1. Reduced cash flow: If the company is unable to sell all of its issued securities, it may not receive the full amount of funds it was expecting, which can reduce its cash flow.
2. Increased debt: If the company issues more securities than it can sell, it may be forced to take on additional debt to cover its expenses, which can lead to financial difficulties.
3. Decreased investor confidence: Underissue can lead to decreased investor confidence in the company's ability to manage its finances and raise capital, which can negatively impact its stock price and reputation.