Miglo, Anton and Zenkevich, Nikolay (2005): Non-hierarchical signalling: two-stage financing game. Forthcoming in: Game Theory and Applications, Nova Science Publishers Inc., NY , Vol. Volume,
Download (182Kb) | Preview
The literature analyzing games where some players have private information about their "types" is usually based on the duality of "good" and "bad" types (GB approach), where "good" type denotes the type with better quality. In contrast, this paper analyzes a signalling game without types hierarchy. Different types have the same average qualities but different profiles of quality over time which are their private information. We apply this idea to analyze a financing-investment game where firms' insiders have private information about the firm's profit profile over time. If transporting cash between period is costless equilibrium is pooling with up-front equity financing. Otherwise equilibrium is either pooling with debt when the economy is stagnating, or separating when the economy is growing (some firms issue debt and some firms issue shares). This provides new theoretical results that cannot be explained by the standard GB models and which are consistent with some financial market phenomena.
|Item Type:||MPRA Paper|
|Original Title:||Non-hierarchical signalling: two-stage financing game|
|Keywords:||Asymmetric information; Non-hierarchical signalling; Financing; Debt-equity choice; Equilibrium refinements; Intuitive criterion; Mispricing|
|Subjects:||G - Financial Economics > G3 - Corporate Finance and Governance > G32 - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
D - Microeconomics > D9 - Intertemporal Choice and Growth > D92 - Intertemporal Firm Choice and Growth, Financing, Investment, and Capacity
D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D82 - Asymmetric and Private Information; Mechanism Design
C - Mathematical and Quantitative Methods > C7 - Game Theory and Bargaining Theory > C73 - Stochastic and Dynamic Games; Evolutionary Games; Repeated Games
|Depositing User:||Anton Miglo|
|Date Deposited:||28. Dec 2006|
|Last Modified:||17. Feb 2013 20:03|
Akerloff G. (1970). The Market for Lemons: Quality Incertainty and the Market Mechanism. Quarterly Review of Economics. Vol. 74 (n. 3), 488-500 Brennan, M., & Kraus, A. (1987). Efficient Financing under Asymmetric Information. The Journal of Finance, Vol. XLII, n. 5, december, 1225-1243. Brick, I., Frierman M., & Kim, Y. K. (1998). Asymmetric information Concerning the Variance of Cash Flows: The Capital Structure Choice. International Economic Review, Vol. 39, n. 3 (Aug.), 745-761 . Cadsby, C.B., Frank, M. & Maksimovic, V. (1998). Equilibrium Dominance in Experimental Financial Markets. The Review of Financial Studies, Vol. 11, No. 1. (Spring), 189-232. Cai, J., & Wei, K. (1997). The Investment and Operating Performance of Japanese Initial Public Offerings. Pacific-Basin Finance Journal, 5, 389-417. Cho, I. K., & Kreps, D. (1987). Signalling Games and Stable Equilibria. Quarterly Journal of Economics, 102 (2), 179-221. Dittmar, A., Mahrt-Smith, J. & Servaes, H. (2003). International Corporate Governance and Corporate Cash Holdings. Journal of Financial and Quantitative Analysis, Vol. 38, n. 1 (march), 111-133. Easterbrook, F. (1984). Two Agency-cost Explanation of Dividends. American Economic Review, Vol. 74 (4), 650-659. Fama, E.,& French, K. (2002). Testing Trade-off and Pecking Order Predictions about Dividends and Debt. The Review of Financial Studies, Vol. 15, n.1 ,1-33. Fudenberg, D. & Tirole, J. (1991). Game Theory. Cambridge, Mass. : MIT Press. Jain, B., & Kini, O. (1994). The Post-Issue Operating Performance of IPO Firms. The Journal of Finance, vol. XLIX, n.5, December, 1699-1726. Jensen, M. C. (1986). Agency Cost of Free Cash-flow, Corporate Finance and Takeovers. American Economic Review, Vol. 76, n. 2, 323-329. Kreps, D. M., & Wilson, R. (1982). Sequential Equilibria. Econometrica, vol. 50, n.4, July, 863-894. Lang, L., & Litzenberger, R, (1989). Dividend Announcements: Cash Flow Signalling vs. Free Cash Flow Hypothesis? Journal of Financial Economics, 24, 181-191, North-Holland. Loughran, T., & Ritter, J. (1997). The Operating Performance of Firms Conducting Seasoned Equity Offerings. Journal of Finance, Vol. 52, No. 5, Dec., 1823-1850. Mickelson, W., Partch, M. & Shah, K. (1997). Ownership and Operating Performance of Companies That Go Public. Journal of Financial Economics, 44, 281-307. Myers, S.C., & Majluf, N.S. (1984). Corporate Financing and Investment Decisions When Firms Have Information That Investors Do not have. Journal of Financial Economics, 13(2), June, 187-221. Nachman, D.C., & Noe, T.H. (1994). Optimal Design of Securities Under Asymmetric Information. The Review of Financial Studies, Spring, Vol. 7, No. 1, 1-44. Petrosian, L. A., & Zenkevich, N. A. (1996). Game Theory. Singapore; River Edge, N. J.; World Scientific, Series on optimization, v. 3. Rajan, R. G., & Zingales, L. (1995). What Do We Know About Capital Structure? Some evidence from international data. Journal of Finance, 50, 1421-1460. Titman, S., & Wessels, R. (1988). The Determinants of Capital Structure Choice. Journal of Finance, 43, 1-19. Zenkevich, N. A., & Voznyuk, S. N. (1996). A Game-Theoretic Model of Divisible Goods Bargaining. Game Theory and Applications. Vol. 1. New York, USA. Nova Science Publishers Inc., 201-208. Zenkevich, N. A., & Huang, S. (2003). Comparison of Two Economic Models for a Business-to-Business Exchange. ICM Millenium Lectures on Games, Springer-Verlag, Berlin, Heidelberg, 335-345.