Over Subscription Detailed Study Notes for the UGC-NET Commerce

In the fast-paced world of modern technology and digital connectivity, over subscription has become a common phenomenon. From internet bandwidth to event tickets, the demand often exceeds the available supply, leading to challenges for both consumers and providers. Over subscription occurs when more people or entities sign up for a service or product than can be accommodated, resulting in overcrowding, reduced performance, and dissatisfaction. Join us as we delve into the intricacies of over subscription, exploring its causes, consequences, and potential solutions.

Over subscription is one of the most asked topics to be studied for the commerce related exams such as the UGC-NET Commerce Examination.

In this article, the readers will be able to know about the over subscription along with other related topics in detail.

What is Over Subscription of Shares?

Meaning of over subscription of shares can be understood as the occurrence when the demand for shares in a company's initial public offering (IPO) exceeds the number of shares available for purchase. In other words, more investors are willing to buy shares than the company has made available for sale.

When a company decides to go public and issue shares through an IPO, it typically sets a certain number of shares to be sold at a specific price. However, if the IPO generates significant interest from investors, there may be more demand for shares than the company initially anticipated. This can lead to over subscription, where investors submit orders for more shares than are available.

In such cases, the company and its underwriters may need to allocate shares among investors based on certain criteria, such as priority investors (institutional investors, strategic partners, etc.), or through a lottery system. Additionally, the company may choose to issue more shares (known as an over-allotment or "greenshoe" option) to meet the excess demand.

Over subscription of shares is generally seen as a positive sign for the company, indicating strong investor interest and potentially leading to a higher IPO price and increased capital raised. However, it can also result in allocation challenges and may lead to some investors not receiving the desired issuance of shares.

Over Subscription in Accounting

In accounting, over subscription refers to a situation where more shares of a company's stock are demanded in an initial public offering (IPO) or a secondary offering than are actually available for sale. This results in an excess of demand over the number of shares offered by the company.

When an IPO or secondary offering is oversubscribed, it typically indicates strong investor interest in the company and its shares. However, it can also present challenges for the company and its underwriters in allocating shares to investors.

To manage over subscription in accounting, the company and its underwriters may use various methods to allocate shares among investors. These methods can include:

• Pro-rata allocation: Shares are allocated to investors on a proportional basis, based on the number of shares they applied for relative to the total demand.
• Allotment criteria: Shares may be allocated based on certain criteria, such as priority investors (institutional investors, strategic partners, etc.) or through a lottery system.
• Greenshoe option: The company may choose to issue additional shares (known as the greenshoe option) to meet the excess demand. This option allows the underwriters to purchase additional shares from the company at the offering price, which can help stabilize the stock price and meet investor demand.

Difference Between Over Subscription and Under Subscription

Conclusion

As we wrap up our exploration of over subscription, it's clear that this phenomenon is a double-edged sword. While it reflects high demand and popularity for a service or product, it also poses challenges for both providers and consumers. From strained resources to diminished user experiences, over subscription highlights the delicate balance between supply and demand in our interconnected world. Moving forward, finding sustainable solutions to address over subscription will be crucial for ensuring equitable access and optimal performance for all.

Over subscription are a vital topic as per several competitive exams. It would help if you learned other similar topics with the Testbook App.