A Recent IPO of Rosetta Stone incorporation, which went public on April 16, 2009, the day of the offering, Rosetta Stone shares began trading on the NYSE at $23 and closed at $25.12, where the first-day jump was more than 39%. Over the next several months, the stock traded for almost 31 per share. Then on August 10, 2009, Rosetta Stone announced that it had filed another registration statement with the Security Exchange Commission for a secondary offering. Most of the stock to be sold in the secondary offering would come from two shareholders who owned large stakes before the IPO, not from new stock issued by the company. Over the next week, Rosetta Stone’s price fell to $20 per share, a 35% drop in one week. On August 17, 2009, the firm announced that the secondary offering was cancelled.

Discuss the financial market’s reaction to the secondary offering of a company (why there was a drop in the price) and whether dilution is a reason for the decline.