According to the signaling theory to explain differences in firms' capital structures, an announcement of a new stock issue by a mature, seasoned firm that has numerous financing alternatives generally is seen as a signal that the its future prospects are very positive.

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According to the signaling theory, an announcement of a new stock issue by a mature, seasoned firm that has numerous financing alternatives generally is seen as a signal that the firm's future prospects are not very positive, as they would not need to issue new stocks if they had better financing alternatives available.

According to the Signaling Theory to Explain Differences in Firms