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The impact of switching costs on vendor financing
Authors:M Martin Boyer  Karine Gobert
Institution:1. HEC Montréal, Université de Montréal, 3000 chemin de la Côte-Sainte-Catherine, Montréal, QC, Canada H3T 2A7;2. Faculté d’administration and GREDI, Université de Sherbrooke, 2500 Boulevard de l’Université, Sherbrooke, QC, Canada J1K 2R1;3. Cirano, 2020 University Ave., 25th Floor, Montréal, QC, Canada H3A 2A5;1. School of Management and Economics, University of Electronic Science and Technology of China, Chengdu 610054, China;2. School of Aerospace, Mechanical and Manufacturing Engineering, RMIT University, 124 LaTrobe Street, Melbourne, Vic. 3000, Australia;1. Graduate School of Business and Administration, Shu-Te University, Yen-Chao, Kaohsiung 824, Taiwan;2. Department of Industrial Management, Chien Hsin University of Science and Technology, Taoyuan 320, Taiwan;1. Faculty of Business Administration, University of New Brunswick, Fredericton, NB, Canada E3B 5A3;2. Centre for Discrete Mathematics and Its Applications (DIMAP), Warwick Business School, University of Warwick, Coventry CV4 7AL, UK;3. Department of Applied Mathematics, Beijing University of Technology, Beijing 100124, PR China;1. School of Management, Huazhong University of Science and Technology, Wuhan, China;2. Naveen Jindal School of Management, The University of Texas at Dallas, TX, USA;3. Business School, Hunan University, Changsha, China;1. School of Statistics, Southwestern University of Finance & Economics, Chengdu 611130, China;2. Department of Management Sciences, Tamkang University, Tamshui Dist., New Taipei City, Taiwan, ROC;3. Department of Industrial and Systems Engineering, School of Engineering, Tecnológico de Monterrey, E. Garza Sada 2501 Sur, C.P. 64849, Monterrey, NL, Mexico;4. Department of Supply Chain and Business Technology Management, Concordia University, Montreal, Quebec H3G 1M8, Canada
Abstract:We show that vendor financing appears in equilibrium as the result of repeated trade interactions between a buyer and a supplier when changing supplier is costly. Competition between suppliers forces them to offer a rebate before the relationship is initiated and switching costs allow the buyer to borrow from the supplier in the first period and to roll over the debt until the end of the relationship. The sequence of transfers is similar to a long-term financing structure. Our model suggests that switching costs allow small business owners to smooth their dividend income by using vendor financing.
Keywords:
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