TY - JOUR
T1 - Debt-equity choice as a signal of earnings profile over time
AU - Miglo, A.
PY - 2007/3/1
Y1 - 2007/3/1
N2 - This paper analyzes debt-equity choice for financing a two-stage investment when a firm's insiders have private information about the firm's expected earnings. When private information is one-dimensional (for example when short-term earnings are common knowledge while long-term earnings are private information) a separating equilibrium does not exist. When private information is two-dimensional a separating equilibrium may exist where firms with a higher rate of earnings growth issue debt and firms with a lower rate of earnings growth issue equity. This provides new insights into the issue of different kinds of securities by different types of firms under asymmetric information as well as the link between debt-equity choice and operating performance.
AB - This paper analyzes debt-equity choice for financing a two-stage investment when a firm's insiders have private information about the firm's expected earnings. When private information is one-dimensional (for example when short-term earnings are common knowledge while long-term earnings are private information) a separating equilibrium does not exist. When private information is two-dimensional a separating equilibrium may exist where firms with a higher rate of earnings growth issue debt and firms with a lower rate of earnings growth issue equity. This provides new insights into the issue of different kinds of securities by different types of firms under asymmetric information as well as the link between debt-equity choice and operating performance.
UR - http://www.scopus.com/inward/record.url?eid=2-s2.0-33846504824&partnerID=MN8TOARS
U2 - 10.1016/j.qref.2006.07.001
DO - 10.1016/j.qref.2006.07.001
M3 - Article
VL - 47
SP - 69
EP - 93
JO - Quarterly Review of Economics and Finance
JF - Quarterly Review of Economics and Finance
SN - 1062-9769
IS - 1
ER -