Empirical evidence suggests that the market price of a firm's existing shares is most likely to decline upon the announcement of a new equity issue. Issuing new equity requires the firm to incur substantial issue costs has been advanced as a possible explanation for this phenomenon.

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When a company announces a new equity issue, the market often interprets it as a signal that the firm might be overvalued or in need of cash, which can lead to a decline in the price of existing shares. Additionally, the costs associated with issuing new equity, such as underwriting fees and discounts, can dilute the value of existing shares, further contributing to the price decline.

Empirical Evidence Suggests That the Market Price of a Firm's