Screening, Market Signalling, and Capital Structure Theory

  • Author(s): WAYNE L. LEE, ANJAN V. THAKOR, GAUTAM VORA
  • Published: Apr 30, 2012
  • Pages: 1507-1518
  • DOI: 10.1111/j.1540-6261.1983.tb03837.x

ABSTRACT

This paper develops an equilibrium model in which informational asymmetries about the qualities of products offered for sale are resolved through a mechanism which combines the signalling and costly screening approaches. The model is developed in the context of a capital market setting in which bondholders produce costly information about a firm's a priori imperfectly known earnings distribution and use this information in specifying a bond valuation schedule to the firm. Given this schedule, the firm's optimal choices of debt‐equity ratio and debt maturity structure subsequently signal to prospective shareholders the relevant parameters of the firm's earnings distribution.

Jump to menu

Main Navigation

Search the Site / Journal

Search Keywords

Search Tips

Members' Login

Credentials

Members' Options

Site Footer

View Mobile Version