Non-hierarchical signalling: two-stage financing game

Anton Miglo and Nikolay Zenkevich ()

MPRA Paper from University Library of Munich, Germany

Abstract: The literature analyzing games where some players have private information about their "types" is usually based on the duality of "good" and "bad" types (GB approach), where "good" type denotes the type with better quality. In contrast, this paper analyzes a signalling game without types hierarchy. Different types have the same average qualities but different profiles of quality over time which are their private information. We apply this idea to analyze a financing-investment game where firms' insiders have private information about the firm's profit profile over time. If transporting cash between period is costless equilibrium is pooling with up-front equity financing. Otherwise equilibrium is either pooling with debt when the economy is stagnating, or separating when the economy is growing (some firms issue debt and some firms issue shares). This provides new theoretical results that cannot be explained by the standard GB models and which are consistent with some financial market phenomena.

Keywords: Asymmetric information; Non-hierarchical signalling; Financing; Debt-equity choice; Equilibrium refinements; Intuitive criterion; Mispricing (search for similar items in EconPapers)
JEL-codes: C73 D82 D92 G32 (search for similar items in EconPapers)
Date: 2005, Revised 2006
New Economics Papers: this item is included in nep-mic
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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Related works:
Working Paper: Non-hierarchical signalling: two-stage financing game (2006)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:1264

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