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Simultaneous signaling to the capital and product markets

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Author Info

  • Gertner, Robert H.
  • Gibbons, Robert.
  • Scharfstein, David.

Abstract

In this article we analyze an informed firm's choice of financial structure when the financing contract is observed not only by the capital market but also by a second uninformed party, such as a competing firm. The informed firm's gross profit is endogenous, because the second party's action depends on the transaction it observes between the informed firm and the capital market. The main result is that the reasonable capital-market equilibria maximize the ex ante expectation of the informed firm's endogenous gross profits. In distinct contrast to earlier work, which focuses on separating equilibria, in our model it is often the case that all the reasonable equilibria are pooling.

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File URL: http://hdl.handle.net/1721.1/2178
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Bibliographic Info

Paper provided by Massachusetts Institute of Technology (MIT), Sloan School of Management in its series Working papers with number 1917-87..

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Date of creation: 1987
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Handle: RePEc:mit:sloanp:2178

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Postal: MASSACHUSETTS INSTITUTE OF TECHNOLOGY (MIT), SLOAN SCHOOL OF MANAGEMENT, 50 MEMORIAL DRIVE CAMBRIDGE MASSACHUSETTS 02142 USA
Phone: 617-253-2659
Web page: http://mitsloan.mit.edu/
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Postal: MASSACHUSETTS INSTITUTE OF TECHNOLOGY (MIT), SLOAN SCHOOL OF MANAGEMENT, 50 MEMORIAL DRIVE CAMBRIDGE MASSACHUSETTS 02142 USA

Related research

Keywords: HD28 .M414 no.1917-; 87; 1987;

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Cited by:
  1. David A. Miller, 2005. "Invention under uncertainty and the threat of ex post entry," Industrial Organization 0510001, EconWPA.
  2. Javier Campos, 2000. "Responsabilidad limitada, estructura financiera y comportamiento de las empresas españolas," Investigaciones Economicas, Fundación SEPI, vol. 24(3), pages 585-610, September.
  3. Jesús Mario Bilbao & Nieves Jiménez & Jorge Jesús López, 2004. "A note on a value with incomplete communication," Economic Working Papers at Centro de Estudios Andaluces E2004/55, Centro de Estudios Andaluces.
  4. Goltsman, Maria & Pavlov, Gregory, 2011. "How to talk to multiple audiences," Games and Economic Behavior, Elsevier, vol. 72(1), pages 100-122, May.
  5. Paul Klemperer & Jeremy Bulow, 2007. "When are Auctions Best?," Economics Series Working Papers 2007-W03, University of Oxford, Department of Economics.
  6. Enrico C. Perotti & Ernst-Ludwig von Thadden, 2001. "Outside Finance, Dominant Investors and Strategic Transparancy," Tinbergen Institute Discussion Papers 01-019/2, Tinbergen Institute.
  7. Boubaker, Sabri & Mansali, Hatem & Rjiba, Hatem, 2014. "Large controlling shareholders and stock price synchronicity," Journal of Banking & Finance, Elsevier, vol. 40(C), pages 80-96.
  8. Enrico C. PEROTTI & Ernst-Ludwig VON THADDEN, 2001. "Outside Finance, Dominant Investors and Strategic Transparency," Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP) 01.02, Université de Lausanne, Faculté des HEC, DEEP.
  9. Daughety, A. & Reinganum, J., 1991. "Keeping Society in the Dark : On the Admissibility of Pretrial Nogotiations as Evidence in Court," Working Papers 91-24, University of Iowa, Department of Economics.
  10. Giovanni Cespa, 2003. "A Comparison of Stock Market Mechanism," CSEF Working Papers 94, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
  11. Arturo, Ramirez Verdugo, 2004. "Dividend Signaling and Unions," MPRA Paper 2273, University Library of Munich, Germany, revised 04 Oct 2006.
  12. Datta, Sudip & Iskandar-Datta, Mai & Singh, Vivek, 2013. "Product market power, industry structure, and corporate earnings management," Journal of Banking & Finance, Elsevier, vol. 37(8), pages 3273-3285.
  13. Manel Antelo, 2004. "Simultaneous signaling and output royalties in licensing contracts," Economic Working Papers at Centro de Estudios Andaluces E2004/53, Centro de Estudios Andaluces.
  14. Nancy A. Lutz, 1988. "Warranties as Signals Under Consumer Moral Hazard," Cowles Foundation Discussion Papers 867, Cowles Foundation for Research in Economics, Yale University.

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