Product Quality and Payment Policy

Product Quality and Payment Policy This paper provides a theoretical explanation for the choice of payment terms under which a company sells its products. In our model, these terms are chosen to permit sellers or buyers to specialize at repairing defects if they are equally well-informed about quality or if one has significantly lower repair costs than the other. Otherwise, the terms are chosen to signal product quality. We also develop the empirical implications of this theory by predicting a seller's choice of payment terms based on the characteristics of its product market. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Review of Quantitative Finance and Accounting Springer Journals

Product Quality and Payment Policy

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Publisher
Springer Journals
Copyright
Copyright © 1998 by Kluwer Academic Publishers
Subject
Finance; Corporate Finance; Accounting/Auditing; Econometrics; Operation Research/Decision Theory
ISSN
0924-865X
eISSN
1573-7179
D.O.I.
10.1023/A:1008201701163
Publisher site
See Article on Publisher Site

Abstract

This paper provides a theoretical explanation for the choice of payment terms under which a company sells its products. In our model, these terms are chosen to permit sellers or buyers to specialize at repairing defects if they are equally well-informed about quality or if one has significantly lower repair costs than the other. Otherwise, the terms are chosen to signal product quality. We also develop the empirical implications of this theory by predicting a seller's choice of payment terms based on the characteristics of its product market.

Journal

Review of Quantitative Finance and AccountingSpringer Journals

Published: Oct 6, 2004

References

  • Accounts receivable management policy: theory and evidence
    Mian, S. L.; Smith, C. W.

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