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Emergence of captive finance companies and risk segmentation in loan markets: Theory and rvidence

Title
Emergence of captive finance companies and risk segmentation in loan markets: Theory and rvidence
Authors
Barron J.M.Chong B.-U.Staten M.E.
Ewha Authors
정병욱
Issue Date
2008
Journal Title
Journal of Money, Credit and Banking
ISSN
0022-2879JCR Link
Citation
vol. 40, no. 1, pp. 173 - 192
Indexed
SSCI; SCOPUS WOS scopus
Abstract
A seller with some degree of market power in its product market can earn rents. In this context, there is a gain to granting credit to purchase of the product and thus to the establishment of a captive finance company. This paper examines the optimal behavior of such a durable good seller and its captive finance company. The model predicts a critical difference between the captive finance company's credit standard and that of independent lenders ("banks"), namely, that the captive finance company will adopt a more lenient credit standard. Thus, we should expect the likelihood of repayment of a captive loan to be lower than that of a bank loan, other things equal. This prediction is tested using a unique data set drawn from a major credit bureau in the United States, and the evidence supports the theoretical prediction. © 2008 The Ohio State University.
DOI
10.1111/j.1538-4616.2008.00108.x
Appears in Collections:
경영대학 > 경영학전공 > Journal papers
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