Reputation and signaling in asset sales

Barney Hartman-Glaser

Journal of Financial Economics, 2017, vol. 125, issue 2, 245-265

Abstract: Static adverse selection models of security issuance show that informed issuers can perfectly reveal their private information by maintaining a costly stake in the securities they issue. This paper shows that allowing an issuer to both signal current security quality via retention and build a reputation for honesty leads that issuer to misreport quality even when owning a positive stake, that is, the equilibrium is neither separating nor pooling. An issuer retains less as reputation improves and prices are more sensitive to retention when the issuer has a worse reputation.

Keywords: Costly signaling; Reputation; Repeated games; Asset-backed securities (search for similar items in EconPapers)
JEL-codes: D82 G21 G24 (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (10)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:125:y:2017:i:2:p:245-265

DOI: 10.1016/j.jfineco.2017.05.009

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