Munich Personal RePEc Archive

Non-hierarchical signalling: two-stage financing game

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,

[img]
Preview
PDF
MPRA_paper_1264.pdf

Download (187kB) | Preview

Abstract

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.

UB_LMU-Logo
MPRA is a RePEc service hosted by
the Munich University Library in Germany.