According to the signaling theory of capital structure, the issuance of equity for a firm with various financing alternatives signals that the firm has very favorable prospects which it wants to share with new shareholders.

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According to the signaling theory of capital structure, issuing equity is often interpreted as a signal that the firm's management believes the stock is overvalued or that the firm has less favorable prospects, as they prefer to issue equity rather than debt.

According to the Signaling Theory of Capital Structure, the Issuance