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Vendor Financing

  • Brennan, Michael J
  • Maksimovic, Vojislav
  • Zechner, Josef

This paper shows that, even in the presence of a perfectly competit ive banking industry, it is optimal for firms with market power to en gage in vendor financing if credit customers have lower reservation prices than cash customers, or if adverse selection makes it infeasible to write credit contracts which separate customers according to their credit risk. The authors analyze how the advantage of vendor financing depends on the relative size of the cash and credit markets, the heterogeneity of credit customers, and in the number of firms in the industry. Copyright 1988 by American Finance Association.

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Article provided by American Finance Association in its journal Journal of Finance.

Volume (Year): 43 (1988)
Issue (Month): 5 (December)
Pages: 1127-41

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Handle: RePEc:bla:jfinan:v:43:y:1988:i:5:p:1127-41
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