Contracting with nonfinancial stakeholders and corporate capital structure: the case of product warranties

Document Type

Article

Publication Title

Journal of Financial and Quantitative Analysis

Abstract

We investigate the relation between a firm's product warranty level and its leverage. We find that leverage relates negatively to the warranty level and that this relation is robust to controls for endogeneity and self-selection into offering warranties. The negative warranty-leverage relation obtains only in the subsample of firms in the manufacturing industries. We also show that firms with warranties have the lowest debt levels, firms without warranties but operating in industries where other firms offer warranties on average carry higher debt, and firms in industries where no firm offers a warranty have the highest debt levels.

Publication Date

1-4-2013

Publisher

Cambridge University Press

Volume

Vol.48

Issue

Iss.3

Link to Full Text
Request Access

Share

COinS