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Product market efficiency: the bright side of myopic, uninformed, and passive external finance

Abstract:

We show that introducing an external capital market with information asymmetry into a product market model reduces opportunistic substitution of sub-standard goods and encourages producers to concentrate on long-run reputation building. We test this result with a laboratory experiment. We find that, when the problem of product market opportunism is moderate, i.e., reputation formation equilibria exist when firms raise external funds but not when they rely on internal funds, external financi...

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Publication status:
Published

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Publisher:
University of Oxford Publisher's website
Series:
Department of Economics Discussion Paper Series
Publication date:
2008-01-01
Paper number:
2008fe12
Keywords:
Pubs id:
1144057
Local pid:
pubs:1144057
Deposit date:
2020-12-15

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