Christopher Hennessy from UC Berkeley is giving a VGSF research seminar on "A dynamic theory of corporate finance based upon repeated signaling" on FRIDAY, March 30th, from 15:30 to 17:00 in HS 7 at the BWZ, Brünnerstrasse 72, 1210 Wien. See the VGSF webpage (Activities & Events --> Research Seminars) for a map of the location, the paper to download and this term's entire schedule of seminars.

Please find the paper's abstract below. Christopher is going to be in Vienna for the entire week (March 26th to March 30th). He would be very happy to discuss research with the local faculty. Please contact Michael Halling if you are interested and would like to take advantage of this opportunity.

Best, Michael Halling

Abstract We examine the effect of Markovian hidden information about the marginal product of capital on the dynamics of financing and investment. The model features endogenous investment, debt, default, dividends, equity flotations and share repurchases. Since deadweight signaling costs are necessarily high when net worth is low, forward-looking risk-neutral shareholders behave as if risk-averse. Consequently, in each period's least-cost separating equilibrium, firms can signal positive information with high leverage and investment. Firms with negative information have no debt and raise external funds with equity. Pareto dominant pooling equilibria also exist, but only if net worth is sufficiently low. In the pooling equilibria, firms issue positive amounts of debt and investment is between respective first-best levels. The model is rich in testable predictions and consistent with a broad set of established stylized facts regarding leverage ratios and announcement effects, and can also explain observed violations of the pecking-order hypothesis.