Signalling by direct disclosure under asymmetric information
- 1 June 1986
- journal article
- Published by Elsevier BV in Journal of Accounting and Economics
- Vol. 8 (2), 119-142
- https://doi.org/10.1016/0165-4101(86)90014-5
Abstract
In this paper, an informational asymmetry exists between investors and the issuer of an initial public offering about the value of the security. To avoid market failure, a solution is proposed in which the issuer makes a disclosure about firm value that is verified by an investment banker. The investment banker enters into a contingent contract with investors which imposes a penalty if the ex post observable cash flow indicates fraudulent disclosure. A bivariate signalling model is formulated and solved, and testable implications are derived from comparative statics analysis.This publication has 18 references indexed in Scilit:
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