There are three reasons that a common stock issue might cause a fall in price:

(a) the price fall is needed to absorb the extra supply,

(b) the issue causes temporary price pressure until it has been digested, and

(c) management has information that stockholders do not have.

Explain these reasons more fully. Which do you find most plausible? Is there any way that you could seek to test whether you are right?

AppendixLO1