Debt capacity is often given as a reason for the value of the stock falling when equity is issued. The reason for this is:

Question

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When the management raises equity capital, it can be a signal that the probability of default has risen, and the debt capacity of the firm is limited. This can cause investors to perceive increased risk, leading to a decrease in the value of the stock. Options A and B are not accurate reasons for the stock value falling when equity is issued, and option D includes option A, which is not supported as a valid reason. Option E does not provide any answer.

Debt Capacity Is Often Given as a Reason for the Value