Authors
Michael J Brennan, Vojislav Maksimovics, Josef Zechner
Publication date
1988/12
Journal
The journal of finance
Volume
43
Issue
5
Pages
1127-1141
Publisher
Blackwell Publishing Ltd
Description
This paper shows that, even in the presence of a perfectly competitive banking industry, it is optimal for firms with market power to engage in vendor financing if credit customers have lower reservation prices than cash customers or if adverse selection makes it infeasible to write credit contracts that separate customers according to their credit risk. We analyze how the advantage of vendor financing depends on the relative size of the cash and credit markets, the heterogeneity of credit customers, and the number of firms in the industry.
Total citations
Scholar articles
MJ Brennan, V Maksimovics, J Zechner - The journal of finance, 1988