What does stock dilution refer to in corporate finance?

Stock dilution in corporate finance specifically refers to the issuance of additional shares which decreases the existing ownership percentage of current shareholders. When a company issues more shares — whether to raise capital, reward employees through stock options, or for other strategic reasons — the total number of shares outstanding increases. As a result, the percentage of ownership that existing shareholders have in the company is reduced, thus diluting their control and potentially their voting power.

Moreover, dilution can also affect the per-share value of earnings, as profits are now spread over a larger number of shares, which could lead to a decrease in earnings per share (EPS). This change can impact shareholders' sentiment and influence stock prices, although those ramifications are distinct from the core concept of dilution itself.

The other options address unrelated concepts: the reduction of corporate assets does not directly relate to stockholder ownership percentages; an increase in a company's revenue does not inherently result from share issuance; and market fluctuations may affect stock prices but do not define dilution. Thus, the essence of stock dilution is captured accurately in the notion that issuing additional shares decreases the existing ownership percentage of shareholders.