Most financial economists attribute the drop in the price of equity subsequent to the announcement of a new issue to
A)an increase in the supply of shares.
B)information effect.
C)an increase in the supply of shares and information effect.
D)neither an increase in the supply of shares nor information effect.

Question

Quizplus · Accepted Answer

The drop in the price of equity is often attributed to the information effect, where the announcement of a new issue may signal to the market that the firm's management believes the stock is overvalued or that the firm is in need of capital, which can lead to a negative perception and a drop in stock price.

Most Financial Economists Attribute the Drop in the Price of Equity