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Debt-equity choice as a signal of earnings profile over time

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  • Miglo, Anton

Abstract

This paper analyzes the debt-equity choice for financing a two-stage investment when a firm's insiders have private information about the firm's expected earnings. When private information is one-dimensional (for example when short-term earnings are common knowledge while long-term earnings are private information) a separating equilibrium does not exist. When private information is two-dimensional a separating equilibrium may exist where firms with a higher rate of earnings growth issue debt and firms with a low rate of earnings growth issue equity. This provides new insights into the issue of different kinds of securities by different types of firms under asymmetric information as well as the link between debt-equity choice and operating performance.
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  • Miglo, Anton, 2007. "Debt-equity choice as a signal of earnings profile over time," The Quarterly Review of Economics and Finance, Elsevier, vol. 47(1), pages 69-93, March.
    • Handle: RePEc:eee:quaeco:v:47:y:2007:i:1:p:69-93
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    1. Miglo, Anton, 2010. "The Pecking Order, Trade-off, Signaling, and Market-Timing Theories of Capital Structure: a Review," MPRA Paper 46691, University Library of Munich, Germany, revised 2013.
    2. Anton Miglo, 2009. "Earnings‐Based Compensation Contracts Under Asymmetric Information," Manchester School, University of Manchester, vol. 77(2), pages 225-243, March.
    3. Miglo, Anton, 2021. "A New Capital Structure Theory: The Four-Factor Model," MPRA Paper 105102, University Library of Munich, Germany.
    4. Chiwei SU & Kaihua WANG, 2022. "Does Optimal Capital Structure Exist in Chinese Military Enterprises? Evidence from Industrial Heterogeneity," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(4), pages 128-149, December.
    5. Anton Miglo, 2008. "Project financing versus corporate financing under asymmetric information," Working Papers 0812, University of Guelph, Department of Economics and Finance.
    6. Miglo, Anton, 2004. "Pecking order theory for government finance," MPRA Paper 89017, University Library of Munich, Germany, revised 2018.
    7. Miglo, Anton, 2017. "Timing of earnings and capital structure," The North American Journal of Economics and Finance, Elsevier, vol. 40(C), pages 1-15.
    8. Miglo, Anton, 2020. "ICO vs. Equity Financing Under Imperfect, Complex and Asymmetric Information," MPRA Paper 99598, University Library of Munich, Germany.
    9. Kürşat Yalçiner & Murat Topcu, 2022. "BİST İmalat Sanayi Şirketleri Dolarizasyon Eğiliminin İşletme Finansman Politikaları Üzerine Etkileri," Journal of Research in Economics, Politics & Finance, Ersan ERSOY, vol. 7(2), pages 500-526.
    10. Miglo, Anton & Zenkevich, Nikolay, 2005. "Non-hierarchical signalling: two-stage financing game," MPRA Paper 1264, University Library of Munich, Germany, revised 2006.
    11. Anton Miglo, 2006. "Optimal compensation contracts under asymmetric information concerning expected earnings," Working Papers 0613, University of Guelph, Department of Economics and Finance.

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