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How are repeated conversions of preferred stock prevented from diluting the value of common stock?

April 26, 2017common stock conversions diluting preferred stock Repeated value

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How are repeated conversions of preferred stock prevented from diluting the value of common stock?

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The formula used to convert the convertible preferred stock into shares of common stock typically includes an adjustment mechanism—an “anti-dilution provision”—that protects the investor against any dilution in his percentage ownership caused by sale of cheaper stock to later investors.