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| Author: | Brick, I. E. Frierman, M. Kim, Y. K. |
| Title: | Asymmetric information concerning the variance of cash flows: the capital structure choice. |
| Journal: | International Economic Review
1998 : AUG, VOL. 39:3, p.745-761 |
| Index terms: | Cash flow Debt management Econometric models |
| Language: | eng |
| Abstract: | The authors assume that a higher valued firm is distinguished from its lower valued counterpart by having a cash flow distribution with a lower variance. A separing Nash equilibrium signaling model is developed in which firms use the levels of debt and dividends to convey information to the market regarding the variance of their underlaying cash flow. In contrast to most, if not all, debt signaling models, the higher quality firm signals its value by issueing new equity while simultaneously offering cash dividends. |
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