IDEAS home Printed from https://ideas.repec.org/a/ier/iecrev/v33y1992i2p399-412.html
   My bibliography  Save this article

Bankruptcy, Warranties and the Firm's Capital Structure

Author

Listed:
  • Appelbaum, Elie

Abstract

This paper examines the role of capital structure as an instrument for shifting risk between real and financial markets. The author considers a firm whose contractual agreements involve both consumers and debtholders and shows that if consumers are risk averse, whereas equity and debtholders are risk neutral, the firm uses its capital structure to shift risk away from consumers. The optimal allocation of risk across real and financial markets leads the firm to be fully equity financed. Copyright 1992 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.

Suggested Citation

  • Appelbaum, Elie, 1992. "Bankruptcy, Warranties and the Firm's Capital Structure," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 33(2), pages 399-412, May.
    • Handle: RePEc:ier:iecrev:v:33:y:1992:i:2:p:399-412
    as

    Download full text from publisher

    File URL: http://links.jstor.org/sici?sici=0020-6598%28199205%2933%3A2%3C399%3ABWATFC%3E2.0.CO%3B2-A&origin=repec
    File Function: full text
    Download Restriction: Access to full text is restricted to JSTOR subscribers. See http://www.jstor.org for details.
    ---><---

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Elie Appelbaum, 2002. "Union Contracts and the Firm's Financial Structure," Working Papers 2002_12, York University, Department of Economics.
    2. Murthy, D. N. P. & Djamaludin, I., 2002. "New product warranty: A literature review," International Journal of Production Economics, Elsevier, vol. 79(3), pages 231-260, October.
    3. Appelbaum, Elie, 1993. "Government policy and the firm's capital structure," European Economic Review, Elsevier, vol. 37(6), pages 1185-1196, August.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Elie Appelbaum, 2002. "Union Contracts and the Firm's Financial Structure," Working Papers 2002_12, York University, Department of Economics.
    2. Tsoulouhas, Theofanis, 1996. "Labor and credit contracts with asymmetric information and bankruptcy," European Economic Review, Elsevier, vol. 40(8), pages 1665-1682, November.
    3. Stefan Arping & Gyöngyi Lóránth, 2006. "Corporate Leverage and Product Differentiation Strategy," The Journal of Business, University of Chicago Press, vol. 79(6), pages 3175-3208, November.
    4. Hauenschild, Nils & Stahlecker, Peter, 2004. "Loan financing, bankruptcy, and optimal supply," International Review of Economics & Finance, Elsevier, vol. 13(2), pages 115-140.
    5. Elie Appelbaum, 2007. "Incomplete Contracts, Bankruptcy and the Firm’s Capital Structure," Working Papers 2007_06, York University, Department of Economics.
    6. Murthy, D. N. P. & Djamaludin, I., 2002. "New product warranty: A literature review," International Journal of Production Economics, Elsevier, vol. 79(3), pages 231-260, October.
    7. 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.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Zhou, Chongwen & Chinnam, Ratna Babu & Dalkiran, Evrim & Korostelev, Alexander, 2017. "Bayesian approach to hazard rate models for early detection of warranty and reliability problems using upstream supply chain information," International Journal of Production Economics, Elsevier, vol. 193(C), pages 316-331.
    2. Luo, Ming & Wu, Shaomin, 2019. "A comprehensive analysis of warranty claims and optimal policies," European Journal of Operational Research, Elsevier, vol. 276(1), pages 144-159.
    3. Wang, Xiaolin & Liu, Bin & Zhao, Xiujie, 2021. "A performance-based warranty for products subject to competing hard and soft failures," International Journal of Production Economics, Elsevier, vol. 233(C).
    4. Joaquín Coleff, 2020. "Can consumer complaints reduce product reliability? Should we worry?," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 29(1), pages 74-96, January.
    5. Liu, Yiliu & Liu, Zixian & Wang, Yukun, 2013. "Customized warranty offering for configurable products," Reliability Engineering and System Safety, Elsevier, vol. 118(C), pages 1-7.
    6. Darghouth, M.N. & Ait-kadi, D. & Chelbi, A., 2017. "Joint optimization of design, warranty and price for products sold with maintenance service contracts," Reliability Engineering and System Safety, Elsevier, vol. 165(C), pages 197-208.
    7. Coleff, Joaquín, 2011. "Product reliability, consumers’ complaints and market performance: the case of consumers’ associations," UC3M Working papers. Economics we1121, Universidad Carlos III de Madrid. Departamento de Economía.
    8. Wang, Xiaolin & Li, Lishuai & Xie, Min, 2020. "An unpunctual preventive maintenance policy under two-dimensional warranty," European Journal of Operational Research, Elsevier, vol. 282(1), pages 304-318.
    9. Mitra, Amitava, 2021. "Warranty parameters for extended two-dimensional warranties incorporating consumer preferences," European Journal of Operational Research, Elsevier, vol. 291(2), pages 525-535.
    10. Vergara, Marcos & Bonilla, Claudio A. & Sepulveda, Jean P., 2016. "The complementarity effect: Effort and sharing in the entrepreneur and venture capital contract," European Journal of Operational Research, Elsevier, vol. 254(3), pages 1017-1025.
    11. Nan Zhang & Mitra Fouladirad & Anne Barros, 2018. "Warranty analysis of a two-component system with type I stochastic dependence," Journal of Risk and Reliability, , vol. 232(3), pages 274-283, June.
    12. Ram Niwas & M. S. Kadyan, 2022. "A bi-objective inspection policy for a repairable engineering system with failure free warranty," International Journal of System Assurance Engineering and Management, Springer;The Society for Reliability, Engineering Quality and Operations Management (SREQOM),India, and Division of Operation and Maintenance, Lulea University of Technology, Sweden, vol. 13(2), pages 881-891, April.
    13. SamatlI-Pa, Glay & Taner, Mehmet R., 2009. "The role of repair strategy in warranty cost minimization: An investigation via quasi-renewal processes," European Journal of Operational Research, Elsevier, vol. 197(2), pages 632-641, September.
    14. Fuli Zhou & Xu Wang & Yun Lin & Yandong He & Lin Zhou, 2016. "Strategic Part Prioritization for Quality Improvement Practice Using a Hybrid MCDM Framework: A Case Application in an Auto Factory," Sustainability, MDPI, vol. 8(6), pages 1-17, June.
    15. Wu, Shaomin & Longhurst, Phil, 2011. "Optimising age-replacement and extended non-renewing warranty policies in lifecycle costing," International Journal of Production Economics, Elsevier, vol. 130(2), pages 262-267, April.
    16. Wu, Shaomin, 2011. "Warranty claim analysis considering human factors," Reliability Engineering and System Safety, Elsevier, vol. 96(1), pages 131-138.
    17. Liu, Zhi-Jie & Chen, Wei & Huang, Hong-Zhong & Yang, Bo, 2007. "A diagnostics design decision model for products under warranty," International Journal of Production Economics, Elsevier, vol. 109(1-2), pages 230-240, September.
    18. Luo, Ming & Wu, Shaomin, 2018. "A mean-variance optimisation approach to collectively pricing warranty policies," International Journal of Production Economics, Elsevier, vol. 196(C), pages 101-112.
    19. Pierre Picard & Kili Wang, 2015. "INSURANCE FRAUD THROUGH COLLUSION BETWEEN POLICYHOLDERS AND CAR DEALERS: THEORY AND EMPIRICAL EVIDENCE Pierre PICARD," Working Papers hal-01140590, HAL.
    20. D. Murthy, 2006. "Product warranty and reliability," Annals of Operations Research, Springer, vol. 143(1), pages 133-146, March.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ier:iecrev:v:33:y:1992:i:2:p:399-412. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley-Blackwell Digital Licensing or the person in charge (email available below). General contact details of provider: https://edirc.repec.org/data/deupaus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.