Asymmetric information,dividends, and external financing

We analyze a signaling game where firms' dividend announcements convey private information but the possible need to externally finance the dividend creates an incentive conflict between inside and outside investors. Consequently, the attempt to address an adverse selection problem creates (or exacerbates) moral hazard. The interaction of these two imperfect information problems results in equilibria that may be separating or pooling. Additionally, the equilibrium may be only partially separating, i.e., firms are incompletely identified.