Stock prices tend to _____ following the announcement of a new equity issue and tend to _____ following the announcement of a new debt issue.

Question

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When a company issues new equity, it means that there will be more shares available in the market, diluting the ownership of existing shareholders, which results in a decrease in stock prices. On the other hand, a debt issue means that the company is borrowing money which will have to be repaid with interest, increasing the company's indebtedness and financial risk, hence leading investors to demand a higher return, causing a decrease in stock prices.

Stock Prices Tend to _____ Following the Announcement of a New