Final answer:
A sign of significant investor influence over an investee would not include the dispersion of common stock held by other stockholders or immaterial transactions. As a firm becomes public, more financial investors are inclined to invest even without personal knowledge of the managers, and shareholder influence is correlated with the amount of stock owned.
Step-by-step explanation:
The student's question revolves around the signs of an investor's significant influence over an investee. In this context, significant influence is indicated by the ability to participate in policy-making processes, representation on the board of directors, and other factors that demonstrate a level of control or influence over a firm's operations. However, one factor that is not generally indicative of significant influence is the dispersion of common stock held by other stockholders. When a firm is public and has many shareholders, individual influence is diluted. Moreover, immaterial transactions between the investor and the investee would not typically signify significant influence.
When a firm becomes public, it means that its stock is available for financial investors to buy and sell. Shareholders, who may number in the thousands or millions, vote for a board of directors. The board then hires executives to manage the company. The amount of stock owned correlates with the degree of influence a shareholder holds, evidenced by the number of votes they can cast for the board.
Public companies have widely available information about their products, revenues, costs, and profits. As a company becomes established, with a strategy that seems likely to lead to profits, the individual knowledge of managers becomes less important. Consequently, more outside investors who do not know the managers are willing to provide financial capital to the firm as a form of investment.