Activity: Talk or presentation › Science to science
Description
This paper analyzes a firm's incentives to disclose private information about market demand and its cost when there is a potential entrant. The model illustrates that there is a unique fully revealing disclosure equilibrium in which every type of the incumbent, except the high demand-high cost type (the most favorable state for the entrant), is transparent. The full disclosure equilibrium ceases to be unique when the incumbent needs external financing in the form of risky debt. This creates a second force affecting the disclosure policy, which is the incumbent's own profitability. The incumbent type with the least prospects (the low demand-high cost type) may have an incentive to pool with the high demand-high cost type to issue debt less costly.