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.

Question

Quizplus · Accepted Answer

Empirical evidence shows that the market price of a firm's existing shares is likely to decline after the announcement of a new equity issue. This could be due to the substantial issue costs that the firm incurs, which could lead to a decrease in shareholder value.

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