Why does the stock price tend to drop when firms announce a
seasoned equity offering?
Select one:
a. Because it signals that the issuing firm could be in financial
trouble.
b. Because the new shares will dilute the earnings of existing
shareholders and so the company stock cannot be worth the same
amount anymore.
c. The price only drops when firms state that they intend to use
the new funds to undertake projects that have a negative net
present value.
d. Because investors know that the new issue is underpriced and so
the existing shares must adjust to account for this
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