Keywords
captive financing, resale value support, credit constraint relaxation
Abstract
We propose that, by financing their own product sales through captive finance subsidiaries, durable goods manufacturers commit to higher resale values for their products in future periods. Using data on captive financing by the manufacturers of heavy equipment, we find that captive-backed models have lower price depreciation. The evidence is consistent with captive finance helping manufacturers commit to ex-post actions that support used machine prices. This, in turn, conveys higher pledgeability for captive-backed products, even for individual machines financed by banks. Although motivated as a rent-seeking device, captive financing generates positive spillovers by relaxing credit constraints.
Original Publication Citation
Who Finances Durable Goods and Why it Matters: Captive Finance and the Coase Conjecture, with Justin Murfin Journal of Finance, 2019, 74(2): 755-793.
BYU ScholarsArchive Citation
Murfin, Justin and Pratt, Ryan, "Who Finances Durable Goods and Why It Matters: Captive Finance and the Coase Conjecture" (2019). Faculty Publications. 9246.
https://scholarsarchive.byu.edu/facpub/9246
Document Type
Peer-Reviewed Article
Publication Date
2019
Publisher
Journal of Finance
Language
English
College
Marriott School of Business
Department
Finance
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