If the announcement of a new equity offering causes current equity values to drop,then signaling theory would predict that:

Question

Quizplus · Accepted Answer

Signaling theory suggests that when a company announces a new equity offering and the current equity values drop, it indicates that the market believes the new offering is overpriced. This can show that management knows the issue is overpriced and is using it as a signal to investors that the firm may not have attractive investment opportunities.

If the Announcement of a New Equity Offering Causes Current