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Financial Policy and a Firm's Reputation for Product Quality

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  • Maksimovic, Vojislav
  • Titman, Sheridan

Abstract

This paper analyzes the effect of financial policy on a firm’s incentives to maintain its reputation for producing a high quality product. The paper demonstrates that in certain situations debt will reduce a firm’s ability to credibly offer high quality products and, as a consequence, will reduce its value. However, for firms with assets that have high salvage values in liquidation, debt may increase their ability to credibly offer high quality products, and therefore, increase their values.

Suggested Citation

  • Maksimovic, Vojislav & Titman, Sheridan, 1989. "Financial Policy and a Firm's Reputation for Product Quality," University of California at Los Angeles, Anderson Graduate School of Management qt6x63b7nx, Anderson Graduate School of Management, UCLA.
    • Handle: RePEc:cdl:anderf:qt6x63b7nx
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