Journal of Financial Economics Vol. 125 No. 2 2017
Reputation and signaling in asset sales
Abstract
Static adverse selection models of security issuance show that informed issuers can perfectly reveal their private information by maintaining a costly stake in the securities they issue. This paper shows that allowing an issuer to both signal current security quality via retention and build a reputation for honesty leads that issuer to misreport quality even when owning a positive stake, that is, the equilibrium is neither separating nor pooling. An issuer retains less as reputation improves and prices are more sensitive to retention when the issuer has a worse reputation.
- DOI
- 10.1016/j.jfineco.2017.05.009
- Volume
- 125
- Issue
- 2
- Pages
- 245-265
- Language
- en
- Sources
- bibtex:phds-export.bib openalex crossref