Investors, lacking a credible signal
, would place a negligible value on the firm.
A stronger operating performance should convey a more credible signal
and short traders should reduce their positions to a greater extent in response to the stronger signal.
Economic theory suggests that certification is a credible signal
about the quality of the firm only if the costs of a false signal are significantly greater for a CEO with lower earnings transparency than the benefits that could be gained by pretending to be a CEO with high earnings transparency.
In the financial economy, for example, Myers and Majluf (1984) have shown how shareholders can become victims of adverse selection among firms, while John and Williams (1985) have highlighted how dividends can act as a credible signal
of the profitability of the companies quoted.
Having a sawed off pinky and a scar running down one's cheek is a credible signal
of toughness; adopting the "crouching tiger, hidden dragon" position and yelling "back off--I'm a kung fu master" is not.
The fact that independent Arab media covered the event so well sent a credible signal
to other Arabs about the Iraqi desire for democracy.
But it does say that the right-size chunk will be a credible signal
because a firm will pay high dividends only if its management anticipates that future cash flows will be strong.
In this way, the necessary costs of creating the credible signal
ex ante are incurred, but the marginal cost of then serving as a valuable signaling mechanism to customers seeking hawala services is low.
93The conflict is dragging on, but the international community still refuses to send any credible signal
to Damascus that it will protect the Syrian people or punish the regime for what it is doing.
Looking ahead, the best boost that Congress can provide to the economy is to send a credible signal
that we are serious about cutting spending and eliminating job-killing regulations," he said.
If the holders of junior long-term debt actually can be penalized, then the price of CDSs on that debt would be a very credible signal
that the equity buffer is running thin.
We are very clear that a newly-elected government has to send a credible signal
about its plans to eliminate the great bulk of that fiscal deficit over the lifetime of one parliament and to start immediately in 2010," he said.