Non-hierarchical signalling: two-stage financing game
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Authors
Miglo, Anton
Zenkevich, Nikolay
Issue Date
2006
Type
Article
Language
en_US
Keywords
Business , Asymmetric information , Non-hierarchical signaling , Finance , Debt-equity choice , Equilibrium refinements , Intuitive criterion , Mispricing
Alternative Title
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 firm’s insiders have private information about the firms 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.
Description
Citation
Miglo, A., Zenkevich, N. (2006). Non-hierarchical signalling: two-stage financing game. International Journal of Mathematics, Game Theory and Algebra, 3(15), 1-17.
Publisher
Nova Science Publishers Inc.