Screening, Market Signalling, and Capital Structure Theory
This 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.
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- W. Kip Viscusi, 1978. "A Note on "Lemons" Markets with Quality Certification," Bell Journal of Economics, The RAND Corporation, vol. 9(1), pages 277-279, Spring.
- Thakor, Anjan V, 1982.
" An Exploration of Competitive Signalling Equilibria with "Third Party" Information Production: The Case of Debt Insurance,"
Journal of Finance,
American Finance Association, vol. 37(3), pages 717-739, June.
- Anjan V. Thakor, 2004. "An Exploration of Competitive Signalling Equilibria with 'Third Party' Information Production: The Case of Debt Insurance," Finance 0411028, EconWPA.
- Kraus, Alan & Sick, Gordon A, 1980. " Distinguishing Beliefs and Preferences in Equilibrium Prices," Journal of Finance, American Finance Association, vol. 35(2), pages 335-344, May.
- Sick, Gordon, 1981. "Discussion: Asymmetric Information, Signaling, and Optimal Corporate Financial Decisions," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 16(04), pages 437-438, November.
- Stiglitz, Joseph E, 1975.
"The Theory of "Screening," Education, and the Distribution of Income,"
American Economic Review,
American Economic Association, vol. 65(3), pages 283-300, June.
- Joseph E. Stiglitz, 1973. "The Theory of 'Screening', Education, and the Distribution of Income," Cowles Foundation Discussion Papers 354, Cowles Foundation for Research in Economics, Yale University.
- Grossman, Sanford J & Stiglitz, Joseph E, 1976. "Information and Competitive Price Systems," American Economic Review, American Economic Association, vol. 66(2), pages 246-253, May.
- J. Luis Guasch & Andrew Weiss, 1980. "Wages as Sorting Mechanisms in Competitive Markets with Asymmetric Information: A Theory of Testing," Review of Economic Studies, Oxford University Press, vol. 47(4), pages 653-664.
- Talmor, Eli, 1981. "Asymmetric Information, Signaling, and Optimal Corporate Financial Decisions," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 16(04), pages 413-435, November.
- Allen, Beth E, 1981. "Generic Existence of Completely Revealing Equilibria for Economies with Uncertainty when Prices Convey Information," Econometrica, Econometric Society, vol. 49(5), pages 1173-1199, September.
- Michael Spence, 1973. "Job Market Signaling," The Quarterly Journal of Economics, Oxford University Press, vol. 87(3), pages 355-374.
- George A. Akerlof, 1970. "The Market for "Lemons": Quality Uncertainty and the Market Mechanism," The Quarterly Journal of Economics, Oxford University Press, vol. 84(3), pages 488-500.
- Niehans, Jurg & Hewson, John, 1976. "The Eurodollar Market and Monetary Theory," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 8(1), pages 1-27, February.
When requesting a correction, please mention this item's handle: RePEc:wpa:wuwpfi:0411023. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (EconWPA)
If references are entirely missing, you can add them using this form.