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Restructuring as a Signal: A Simple Formalization


  • Colombo, Emilio


Several studies stressed that contrary to initial expectations, state-owned firms at the beginning of transition undertook painful measures to adjust to the new economic environment. This Paper investigates this behaviour in a simple game, a theoretic framework. It is argued that the massive amount of lay-offs created by state-owned firms during the initial phase of 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.

Suggested Citation

  • Colombo, Emilio, 1999. "Restructuring as a Signal: A Simple Formalization," CEPR Discussion Papers 2227, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:2227

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    References listed on IDEAS

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    7. Cohen, Wesley M. & Levin, Richard C., 1989. "Empirical studies of innovation and market structure," Handbook of Industrial Organization,in: R. Schmalensee & R. Willig (ed.), Handbook of Industrial Organization, edition 1, volume 2, chapter 18, pages 1059-1107 Elsevier.
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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


    Restructuring; Signalling; Transitional Economy;

    JEL classification:

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


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