The Relationship between Ownership, Financing Decisions and Firm Performance: A Signaling Model

Mukesh Bajaj, Yuk-Shee Chan and Sudipto Dasgupta

International Economic Review, 1998, vol. 39, issue 3, 723-44

Abstract: The authors develop a signaling model to show how adverse selection and moral hazard interact to determine a firm's ownership structure and financing and investment decisions endogenously. Testable implications are derived regarding the relationship between insider ownership, performance measures such as Tobin's Q ratio, and elements of financial structure such as the debt-equity ratio. Copyright 1998 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.

Date: 1998
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