1 Finance Research Group, Aarhus School of Business, Aarhus BSS, Aarhus University2 Department of Economics and Business - Business Studies, Department of Economics and Business Economics, Aarhus BSS, Aarhus University3 Department of Business Studies, Aarhus School of Business, Aarhus BSS, Aarhus University4 Department of Economics and Business Economics, Aarhus BSS, Aarhus University5 Department of Economics and Business Economics, Aarhus BSS, Aarhus University
This paper develops a real options model of imperfect competition with asymmetric information that analyzes firms’ exit decisions. Optimal exit decision is linked to firm characteristics such as financial leverage and efficiency. The model shows that informational asymmetries can lead more efficient and less leveraged firms to leave the product market prematurely. It also demonstrates how firm efficiency can increase debt capacity relative to rival firms. The model also has implications for firm risk and asset returns. Specifically, the paper shows that, when there is information asymmetry among rivals, rival actions can have a ”news effect” that change a firm’s dynamic risk structure.
Efficiency and Firm Exit,; Real Options; Firm Leverage and Information Revelation; Oligopoly; Capital Structure
Main Research Area:
14th Conference of the Swiss Society for Financial Market Research, 2011