By considering a broad class of securities offerings that we term
capital structurings, a firm can always avoid pooling with firms whose prospects are poorer. This result implies that firms need not indulge in
costly information gathering, hoping thereafter to signal to investors. One application allows us to describe a new theory
of capital structurings, in which firms choose their capital structure not (as in traditional capital structure signaling
theory) to signal privately known prospects, but rather to signal that no (productively useless) investigation of prospects
has been pursued. A second application addresses the issue of the impossibility of informationally efficient capital markets:
firms are capable of establishing conditions under which investors will recognize informational efficiency.
Key words capital structuring - information gathering - signaling theory
The authors wish to acknowledge helpful comments by participants in seminars at the University of Hawaii at Manoa and the
Univeristy of Tsukuba. Particular thanks go to Adam Brandenburger and an anonymous referee. Naturally, any remaining errors
are the responsiblity of the authors.
C.J.J. is on leave at the Council of Economic Advisers. This article reflects the opinions of the authors and not that of
the Council of Economic Advisers.
Much of the work for this article was conducted while E.H.R. was on leave at the Institute of Socio-Economic Planning at the
University of Tsukuba, Tsukuba, Ibaraki 305, Japan.