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Simultaneous Signalling to the Capital and Product Markets
Abstract
In this article we analyze an informed firm's choice of financial structure when the financing contract is observed not only by the capital market but also by a second uninformed party, such as a competing firm. The informed firm's gross profit is endogenous, because the second party's action depends on the transaction it observes between the informed firm and the capital market. The main result is that the reasonable capital-market equilibria maximize the ex ante expectation of the informed firm's endogenous gross profits. In distinct contrast to earlier work, which focuses on separating equilibria, in our model it is often the case that all the reasonable equilibria are pooling. 1.
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Cites
Corporate financing and investment decisions when firms have information that investors do not have
Myers, S. C., & Majluf, N. S. (1984) · Journal of Financial Economics · doi:10.1016/0304-405x(84)90023-0 · Cited by 18,957
The Determination of Financial Structure: The Incentive‐Signalling Approach,
Ross, S. A. (1977) · The Bell Journal of Economics · doi:10.2307/3003485 · Cited by 4,168
Cited by
The Theory of Capital Structure
HARRIS, M., & RAVIV, A. (1991) · The Journal of Finance · doi:10.1111/j.1540-6261.1991.tb03753.x · Cited by 4,347
Financial disclosure policy in an entry game
Darrough, M. N., & Stoughton, N. M. (1990) · Journal of Accounting and Economics · doi:10.1016/0165-4101(90)90048-9 · Cited by 850
Debt financing: Does it boost or hurt firm performance in product markets?
Campello, M. (2006) · Journal of Financial Economics · doi:10.1016/j.jfineco.2005.04.001 · Cited by 511
Increased debt and industry product markets an empirical analysis
Phillips, G. M. (1995) · Journal of Financial Economics · doi:10.1016/0304-405x(94)00785-y · Cited by 447
CSR Initiatives as Market Signals: A Review and Research Agenda
Zerbini, F. (2017) · Journal of Business Ethics · doi:10.1007/s10551-015-2922-8 · Cited by 360
Metadata
- Authors
- Gertner, R., Gibbons, R., & Scharfstein, D.
- Venue
- The RAND Journal of Economics
- Publisher
- Wiley
- Published
- 1988
- Volume
- 19
- Issue
- 2
- Pages
- 173
- ISSN
- 0741-6261 (ISSN-L)
- OpenAlex
- W1965968450
- Cited by
- 208
- References
- 2
- FWCI
- 18.38
- Type
- journal article
- Language
- en
- Open access
- closed
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- Gertner, R., Gibbons, R., & Scharfstein, D. (1988). Simultaneous Signalling to the Capital and Product Markets. The RAND Journal of Economics. https://doi.org/10.2307/2555698
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Contains information from the Semantic Scholar Academic Graph Datasets, made available under the ODC Attribution License (ODC-BY 1.0).
Semantic Scholar’s data is described in: Kinney, R., et al. (2023). The Semantic Scholar Open Data Platform. arXiv:2301.10140.
