Screening, Market Signalling, and Capital Structure Theory
AbstractThis paper develops an equilibrium model in which informational asymmetries about the qualities of products offered for sale are resolved through a mechanism which combines the signalling and costly screening approachs. The model is developed in the context of a capital market setting in which bondholders produce costly information about a firm's priori imperfectly known earnings distribution and use this information in specifyihng a bond valuation schedule to the firm. Given this schedule, the firm's optimal choices of debt-equity ratio and debt maturity structure subsequently signal to prospective shareholders the relevant parameters of the firm's earnings distribution.
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Bibliographic InfoPaper provided by EconWPA in its series Finance with number 0411023.
Date of creation: 10 Nov 2004
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- Lee, Wayne L & Thakor, Anjan V & Vora, Gautam, 1983. " Screening, Market Signalling, and Capital Structure Theory," Journal of Finance, American Finance Association, vol. 38(5), pages 1507-18, December.
- G - Financial Economics
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