This paper examines how the possibility of recontracting affects the financing of projects when an entrepreneur is privately informed about the distribution of returns. An entrepreneur solicits initial financing for a project from competing uninformed financiers. Once the project is undertaken, but before its returns are realized, the entrepreneur can solicit additional financial contracts from competing financiers. It is assumed that these financiers can observe all previously signed contracts and that the seniority of claims is respected in the case of bankruptcy; however, the entrepreneur is never committed not to sell junior claims to competing financiers.

This paper examines how the possibility of renegotiation affects contractual outcomes in signaling games when an infinite number of rounds of renegotiations are allowed before contracts are executed. The main results of the paper are (1) contracts may still contain distortions, (2) the popular 'efficient' separating-equilibrium outcome is never an equilibrium outcome with renegotiation, (3) incentive-compatibility constraints can be generalized to incorporate renegotiation, (4) equilibrium outcomes can be separating and nevertheless depend on the uninformed player's prior, and (5) renegotiation in signaling games may lead to outcomes similar to equilibrium outcomes of screening games in which multiple contract purchases are allowed.