Gamestart is a videogame retailer that operates mainly in the US. The company has issued common...
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Gamestart is a videogame retailer that operates mainly in the US. The company has issued common stock equity, partly owned by institutional investors, and bonds to finance its operations. Those are its only sources of capital. The company's shares are publicly traded in the New York Stock Exchange (NYSE). Gamestart has a new management team that is currently implementing a significant restructuring plan. Some of the most important changes are the following: Gamestart announced its intention to issue new shares via a seasoned equity offering (SEO). Upon the announcement, the market price of its stock dropped by 3%. Discuss the potential reasons for this drop in the context of the pecking order theory of capital structure. Discuss whether the drop would have been higher or lower if, ceteris paribus, (i) the number of financial analysts following the firm was lower, (ii) the company's debt was not rated, or (iii) the company had no institutional investor ownership. Gamestart is a videogame retailer that operates mainly in the US. The company has issued common stock equity, partly owned by institutional investors, and bonds to finance its operations. Those are its only sources of capital. The company's shares are publicly traded in the New York Stock Exchange (NYSE). Gamestart has a new management team that is currently implementing a significant restructuring plan. Some of the most important changes are the following: Gamestart announced its intention to issue new shares via a seasoned equity offering (SEO). Upon the announcement, the market price of its stock dropped by 3%. Discuss the potential reasons for this drop in the context of the pecking order theory of capital structure. Discuss whether the drop would have been higher or lower if, ceteris paribus, (i) the number of financial analysts following the firm was lower, (ii) the company's debt was not rated, or (iii) the company had no institutional investor ownership.
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The pecking order theory posits that firms have a preference for using internally generated funds over external financing and that they will only turn ... View the full answer
Related Book For
Macroeconomics Principles, Applications, and Tools
ISBN: 978-0132555234
7th Edition
Authors: Arthur O Sullivan, Steven M. Sheffrin, Stephen J. Perez
Posted Date:
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