Rating Under Asymmetric Information

  • Datum:

    July 26th, 2018

  • Autoren:

    University of Southern Denmark

  • Referent:

    Stefan Hirth

  • We study a dynamic signaling game where a firm, by its decision to stay
    solvent, signals its quality to a rating agency with the rating feeding back
    into the firm’s cost of capital. Observing the firm’s true cash flow blurred
    by a persistent measurement error, the error-minimizing rating agency learns
    dynamically through the firm’s solvency decision. Firms observed with higher
    measurement error default earlier, inducing directional learning by successively
    eliminating measurement errors which are too high to be feasible. In a partially
    separating perfect Bayesian equilibrium in Markov strategies, the firm employs
    a measurement-error dependent cut-off strategy. We discuss the extensive
    economic consequences of such a learning mechanism.

  • Ort:

    09.21 (Blücherstr.)
    11:45 am

    (deviating place!)

  • Links: