Abstract Theoretical and empirical studies show a strong positive correlation between distress and equity issuance which suggests that low future returns of distressed firms ( i.e. , distress anomaly) could be related to the equity issuance puzzle. Upon testing this conjecture, this study finds that low returns of distressed firms are only observed in firms issuing the most equity, and this relationship is robust against alternative specifications. Testing whether distressed equity issuers have reduced exposure to common risk factors renders insignificant results. In conclusion, this study confines the distress anomaly to a subset of firms that issue the most equity.