We found a match
Your institution may have access to this item. Find your institution then sign in to continue.
- Title
Indirect Costs of Financial Distress in Durable Goods Industries: The Case of Auto Manufacturers.
- Authors
Hortaçsu, Ali; Matvos, Gregor; Syverson, Chad; Venkataraman, Sriram
- Abstract
Financial distress can disrupt a durable goods producer's provision of complementary goods and services such as warranties, spare parts and maintenance. This reduces consumers' demand for the core product, causing indirect costs of financial distress. We test this hypothesis in the market for used cars sold at wholesale auctions. An increase in a manufacturer's credit default swaps significantly decreases the prices of its cars at auction, especially cars with longer expected service lives. Our estimates imply substantial indirect costs of financial distress for car manufacturers. These costs have occasionally even exceeded the tax savings benefits for General Motors and Ford.
- Subjects
ECONOMIC life of fixed assets; USED car sales &; prices; USED cars; CREDIT default swaps; SWAPS (Finance); AUTOMOBILE industry; FINANCE; CORPORATE finance; VALUATION
- Publication
Review of Financial Studies, 2013, Vol 26, Issue 5, p1248
- ISSN
0893-9454
- Publication type
Article
- DOI
10.1093/rfs/hht006