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Reputation and signaling in asset sales

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  • Hartman-Glaser, Barney

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.

Suggested Citation

  • Hartman-Glaser, Barney, 2017. "Reputation and signaling in asset sales," Journal of Financial Economics, Elsevier, vol. 125(2), pages 245-265.
    • Handle: RePEc:eee:jfinec:v:125:y:2017:i:2:p:245-265
    DOI: 10.1016/j.jfineco.2017.05.009
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    References listed on IDEAS

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    Cited by:

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    3. Josephson, Jens & Shapiro, Joel, 2020. "Credit ratings and structured finance," Journal of Financial Intermediation, Elsevier, vol. 41(C).
    4. Kromidha, Endrit & Li, Matthew C., 2019. "Determinants of leadership in online social trading: A signaling theory perspective," Journal of Business Research, Elsevier, vol. 97(C), pages 184-197.

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    More about this item

    Keywords

    Costly signaling; Reputation; Repeated games; Asset-backed securities;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage

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