The impact of switching costs on vendor financing
AbstractWe show that vendor financing appears in equilibrium as the result of repeated trade interactions between a buyer and a supplier when changing supplier is costly. Competition between suppliers forces them to offer a rebate before the relationship is initiated and switching costs allow the buyer to borrow from the supplier in the first period and to roll over the debt until the end of the relationship. The sequence of transfers is similar to a long-term financing structure. Our model suggests that switching costs allow small business owners to smooth their dividend income by using vendor financing.
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Bibliographic InfoArticle provided by Elsevier in its journal Finance Research Letters.
Volume (Year): 6 (2009)
Issue (Month): 4 (December)
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Web page: http://www.elsevier.com/locate/frl
Trade credit Financing of the firm Hold-up Self-enforcing contracts;
Other versions of this item:
- D92 - Microeconomics - - Intertemporal Choice and Growth - - - Intertemporal Firm Choice and Growth, Financing, Investment, and Capacity
- D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law
- C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
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