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- Title
Vendor Financing.
- Authors
BRENNAN, MICHAEL J.; MAKSIMOVIC, VOJISLAV; ZECHNER, JOSEF
- Abstract
This paper shows that, even in the presence of a perfectly competitive banking industry, it is optimal for firms with market power to engage in vendor financing if credit customers have lower reservation prices than cash customers or if adverse selection makes it infeasible to write credit contracts that separate customers according to their credit risk. We analyze how the advantage of vendor financing depends on the relative size of the cash and credit markets, the heterogeneity of credit customers, and the number of firms in the industry.
- Subjects
FINANCIAL services industry; BANKING research; VENDORS (Real property); CREDIT risk; FINANCIAL research; CREDIT management; TRANSACTION costs; FINANCIAL markets; ADVERSE selection (Commerce); INFORMATION retrieval; INDUSTRIAL organization (Economic theory); PROFITABILITY; ECONOMICS
- Publication
Journal of Finance (Wiley-Blackwell), 1988, Vol 43, Issue 5, p1127
- ISSN
0022-1082
- Publication type
Article
- DOI
10.1111/j.1540-6261.1988.tb03960.x