Signalling with Costly Cash : Is it an Efficient Mechanism?

This paper has for aim to revisit or to give some insights to the Morellec and Schürhoff (2011) dynamic real option investment model in a world in which firms are compelled to raise outside funds from uninformed investors to finance a total investment outlay. These authors determined a unique moment for financing and investing at the same time. We show that it could be valuable to disconnect the financing decision period, from the period chosen for exercising the real option of investment, and that using cash to separate is possible when it is costly enough. Nevertheless signalling by investment distortion is a better and more efficient solution. We achieve this conclusion giving proofs, and illustrating it by comparing several separating equilibriums with the help of some simulations