Studies of capital structure changes have found that actions that increase leverage have generally been associated with ____ stock returns and actions that decrease leverage are associated with ____ stock returns.
A) negative; positive
B) negative; no change in
C) positive; negative
D) no change in; negative

Question

Quizplus · Accepted Answer

Studies have generally found that actions increasing leverage are associated with positive stock returns, as they may signal management's confidence in future cash flows. Conversely, actions decreasing leverage are often associated with negative stock returns, possibly due to concerns over a company's future growth prospects or profitability.

Studies of Capital Structure Changes Have Found That Actions That