Empirical evidence suggests that upon announcement of a new equity issue, current stock prices generally:

Question 1Answer

A. decrease, perhaps because the new issue reflects management's view that common stock is currently overvalued.

B. remain about the same since an efficient market anticipates a new equity issue.

C. increase, perhaps because the issues are associated with positive NPV projects.

D. increase, because the market supply is always less than demand.

E. Increase, because underwriters exercise their green shoe option