If you know that your firm is facing relatively poor prospects but needs new capital, and you know that investors do not have this information, signaling theory would predict that you would Be indifferent between issuing debt and equity. Convey your inside information to investors using the media to eliminate the information asymmetry. Issue debt to maintain the returns of equity holders. Issue equity to share the burden of decreased equity returns between old and new shareholders. Postpone going into capital markets until your firm's prospects improve