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Contracting with Nonfinancial Stakeholders and Corporate Capital Structure: The Case of Product Warranties

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  • Kale, Jayant R.
  • Meneghetti, Costanza
  • Shahrur, Husayn

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.

Suggested Citation

  • Kale, Jayant R. & Meneghetti, Costanza & Shahrur, Husayn, 2013. "Contracting with Nonfinancial Stakeholders and Corporate Capital Structure: The Case of Product Warranties," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 48(3), pages 699-727, June.
    • Handle: RePEc:cup:jfinqa:v:48:y:2013:i:03:p:699-727_00
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    Cited by:

    1. Liu, Laura Xiaolei & Mao, Mike Qinghao & Nini, Greg, 2018. "Customer risk and corporate financial policy: Evidence from receivables securitization," Journal of Corporate Finance, Elsevier, vol. 50(C), pages 453-467.
    2. Dinh Tran Ngoc Huy, 2013. "Selecting Different Industrial Competitors Influence The Risk Level Of Vietnam Telecommunication And Education Companies," Romanian Economic Business Review, Romanian-American University, vol. 8(4), pages 72-83, december.
    3. Yu, Zhen & Li, Yuankun & Ouyang, Ziyi, 2021. "Economic policy uncertainty, hold-up risk and vertical integration: Evidence from China," Pacific-Basin Finance Journal, Elsevier, vol. 68(C).
    4. Bayan M Arqawi & William J Bertin & Laurie Prather, 2014. "The impact of product warranties on the capital structure of Australian firms," Australian Journal of Management, Australian School of Business, vol. 39(2), pages 207-225, May.
    5. Beiqi Lin & Chelsea Liu & Kelvin Jui Keng Tan & Qing Zhou, 2020. "CEO turnover and bankrupt firms’ emergence," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 47(9-10), pages 1238-1267, October.
    6. Keasey, Kevin & Martinez, Beatriz & Pindado, Julio, 2015. "Young family firms: Financing decisions and the willingness to dilute control," Journal of Corporate Finance, Elsevier, vol. 34(C), pages 47-63.
    7. Kurt, Didem & Pauwels, Koen & Kurt, Ahmet C. & Srinivasan, Shuba, 2021. "The asymmetric effect of warranty payments on firm value: The moderating role of advertising, R&D, and industry concentration," International Journal of Research in Marketing, Elsevier, vol. 38(4), pages 817-837.
    8. Cao, Zixia, 2022. "Brand equity, warranty costs, and firm value," International Journal of Research in Marketing, Elsevier, vol. 39(4), pages 1166-1185.

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