Robust Corporate Signaling with Heterogeneous Beliefs

Abstract

We study corporate signaling when a manager and their investors disagree about how the manager’s information affects firm value. We show that signaling with heterogenous beliefs generally requires strong informational assumptions. This motivates our study of robust signaling which remains effective without requiring the agents to agree on the informational environment. When beliefs are common knowledge, robust signaling is uninformative unless the beliefs of the manager and their investors are sufficiently similar. In contrast, when beliefs are private information, then robust signaling is entirely uninformative. These results cast doubt on the efficacy of corporate signaling with heterogeneous beliefs.

Keywords: Corporate Signaling, Beliefs, Robustness

JEL Classification: G30, D82