One implication of the signaling theory of capital structure is that firms should borrow as much as the trade-off theory of capital structure predicts.

Question

Quizplus · Accepted Answer

The signaling theory suggests that firms should use their financing choices, such as debt or equity issuance, to signal information to investors about their future prospects. This theory suggests that firms may choose to issue less debt than predicted by the trade-off theory in order to signal their financial strength and ability to handle risk. Therefore, the correct answer is B, false.

One Implication of the Signaling Theory of Capital Structure Is