Why Might the Stock Price Drop When New Equity Issues

question 71

Multiple Choice

Why might the stock price drop when new equity issues are announced?

• A) issuing stock may indicate that the firm has too much debt or not enough liquidity
• B) if the projects are really favorable, why doesn't the firm just issue debt so that the existing stockholders get all the gain
• C) management knows the stock is overvalued, so they are trying to sell the stock when the price is high
• D) all of the above are reasons the stock price might drop

---

Definitions:

Value

The importance, worth, or usefulness of something, often influencing decisions and behavior.

Work Outcomes

The results or consequences of work performance, including productivity, job satisfaction, and turnover rates among employees.

Flexible Working Hours

An arrangement that allows employees to vary their start and finish times, often to accommodate personal needs or preferences.

Sense of Purpose

A personal belief or aim that gives someone motivation and direction in life.