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The relationship between ownership, financing decisions and firm performance: a signaling model

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<mark>Journal publication date</mark>08/1998
<mark>Journal</mark>International Economic Review
Issue number3
Volume39
Number of pages22
Pages (from-to)723-744
<mark>State</mark>Published
<mark>Original language</mark>English

Abstract

We develop a signaling model to show how adverse selection and moral
hazard interact to determine a firm's ownership structure and financing and
investment decisions endogenously. Testable implications are derived regarding
the relationship between insider ownership, performance measures such as
Tobin's Q ratio, and elements of financial structure such as the debt-equity
ratio.