Which of the following have been offered as justification for stock price declines following an SEO announcement?
I.Investors assume managers issue stock when shares are overvalued.
II.Corporate taxes imposed on stock offerings lower the value of the issuer's cash flows.
III.Issuing debt may be considered a signal that the issuer has too much debt.
IV.Issue costs reduce the value of the issuing firm.

Question

Quizplus · Accepted Answer

I is a common explanation for stock price declines following a stock offering because investors may believe that managers are issuing stock when shares are overvalued. III is also a plausible explanation for a stock price decline following a debt offering, as it may signal that the issuer has taken on too much debt. IV is another reason for a stock price decline because issuing firms must bear the costs of the issue, which lowers their overall value. II is not a common justification for stock price declines following a stock offering, so it is not included in the best choice. Therefore, C is the best answer because it includes I, III, and IV.

Which of the Following Have Been Offered as Justification for Stock