When raising debt to fool the market, the stock price will fall when the market realizes the company tried to fool it.
In such a case, as soon as the market discovers the truth, the share prices of the company might drop. There will be a great impact on the financial distress where its expected costs and probability might increase if the debt goes beyond the optimal level.
By optimal level of debt we mean the level of debt where the marginal distress costs of the debt becomes equal to the marginal tax benefit of debt.
An increase in the level of debt usually sends a positive signal to the market.
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