Final answer:
The true/false statement in the question is considered false according to signaling theory, as typically an equity issue in a setting of asymmetric information is interpreted as a negative signal, contrary to the positive signal suggested in the question.
Step-by-step explanation:
The student's question is addressing the scenario of asymmetric information within a business context, particularly in relation to a firm's financial decisions. The statement to consider is whether an unexpected announcement of an equity issue is a positive signal about the firm's prospects. It's based on a principle in corporate finance known as 'signaling theory', where the actions of a company's management can convey information to outside investors.
Traditionally, when information is asymmetric, meaning that the firm's managers have more information about the firm's health than outside investors, an equity issue could be perceived negatively. This is because it often suggests that managers might believe the stock is overvalued and are thus willing to sell shares at that inflated price.
However, the question posits that an equity issue is the most information sensitive security and hence a positive signal. This is generally not the conventional interpretation in the literature around signaling theory. When information becomes more widely available and the company's future looks profitable, outside investors like bondholders and shareholders become more willing to invest as they rely less on personal knowledge of the managers and more on disclosed information.
Thus, the statement in the question would be considered false according to standard economic theory on asymmetric information and signaling in equity markets.