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Restructuring as a signal: a simple formalization

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  • Emilio Colombo

Abstract

Several studies have stressed that, contrary to initial expectations, state‐owned firms at the beginning of the transition undertook painful measures to adjust to the new economic environment. This paper investigates this behaviour in a simple game theoretic framework. It is argued that the massive amount of lay‐offs created by state‐owned firms during the initial phase of the transition can be interpreted as a signal directed to the banking sector in order to obtain more favourable financing conditions for the subsequent process of restructuring. The conclusions are strongly supported by Polish firm‐level empirical evidence. JEL classification: P31, C72.

Suggested Citation

  • Emilio Colombo, 2002. "Restructuring as a signal: a simple formalization," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 10(1), pages 119-142.
    • Handle: RePEc:bla:etrans:v:10:y:2002:i:1:p:119-142
    DOI: 10.1111/1468-0351.00105
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    Cited by:

    1. Desai, Raj M. & Olofsgard, Anders, 2006. "The political advantage of soft budget constraints," European Journal of Political Economy, Elsevier, vol. 22(2), pages 370-387, June.

    More about this item

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • P31 - Political Economy and Comparative Economic Systems - - Socialist Institutions and Their Transitions - - - Socialist Enterprises and Their Transitions

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