Assume a perfect market world except for the following: tax on dividends is greater than the tax on capital gains in the hands of shareholders, there are transaction costs (including issuance costs), and information asymmetry exists between managers and shareholders. Given these assumptions, firms are behaving irrationally if they continue to pay dividends while also issuing new shares to raise funds for investment opportunities. Explain and critique this statement, referring where relevant to distribution policy theories in your discussion.