Which of the following have been offered as justification for stock price declines following an SEO announcement? I.Investors assume managers issue stock when shares are overvalued.
II)Corporate taxes imposed on stock offerings lower the value of the issuer's cash flows.
III)Issuing equity may be considered a signal that the issuer has too much debt.
IV)Issue costs reduce the value of the issuing firm.

Question

Quizplus · Accepted Answer

I, III, and IV are commonly cited reasons for stock price declines following a Seasoned Equity Offering (SEO). Investors often interpret an SEO as a signal that the company's stock is overvalued (I), that the company might be trying to adjust its debt levels (III), and that the costs associated with issuing new stock (IV) will directly reduce the firm's value. Corporate taxes on stock offerings (II) are not typically cited as a direct reason for stock price declines following an SEO announcement.

Which of the Following Have Been Offered as Justification for Stock