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We analyze the real option signaling game models of debt financing of a risky project under information asymmetry, where the firm quality is only known to the firm management but not outsiders. The firm decides on the optimal investment timing of the risky project that requires upfront fixed...
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competition. We find that leverage has strategic effects, but those effects are much weaker than predicted by theory. Specifically … predicted by theory. It appears that subjects recognize the strategic effects of their own debt. However, they do not (want to …
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