Product Market Efficiency: The Bright Side of Myopic, Uninformed, and Passive External Finance

• 成果类型: Article
• 署名作者: Noe, Thomas H.; Rebello, Michael J.; Rietz, Thomas A.
• 署名单位: University of Oxford; University of Oxford; University of Texas System; University of Texas Dallas; University of Iowa
• 刊物名称: MANAGEMENT SCIENCE
• ISSN/ISSBN: 0025-1909
• DOI: 10.1287/mnsc.1120.1534
• 发表日期: 2012
• 页码: 2019-2036
• 关键词: Adverse selection; financing; reputation

摘要

We model the effect of external financing on a firm's ability to maintain a reputation for high-quality production. Producing high quality is first best. Defecting to low quality is tempting because it lowers current costs while revenue remains unchanged because consumers and outside investors cannot immediately observe the defection. However, defection to low quality impairs the firm's reputation, which lowers cash flows and inhibits production over the long term. Financing via short-term claims discourages defection to low quality because the gains from defection are mostly captured by outside investors through an increase in the value of their claims. Therefore, if the firm relies on short-term external financing, it is more likely to produce over the long run, produce high-quality goods, and enjoy high profitability. The aggregate results from a laboratory experiment generally accord with these predictions.