Masulis (1980) Documented Evidence That the Market Generally Reacts Favorably

Masulis (1980) documented evidence that the market generally reacts favorably to a leverage- increasing debt-for-equity swap, and unfavorably to a leverage decreasing equity-for-debt swap.Which of the following is NOT a legitimate theoretical explanation for these market reactions?

A) Increasing leverage increases the tax shield of debt, while extinguishing debt decreases it.
B) Increasing leverage induces an expropriation of wealth from existing creditors, while extinguishing debt accomplishes the opposite.
C) Increasing leverage via a swap involves paying a dividend to shareholders while decreasing leverage via a swap forces the firm to issue equity.
D) Increasing leverage disciplines management to act in shareholders' interest by absorbing free cash flow, while decreasing leverage increases management's ability to pursue self-serving activities.