Review of Financial Studies Vol. 4 No. 1 1991

Financial Policy and Reputation for Product Quality

Vojislav Maksimovic¹; Sheridan Titman²

¹ University of British Columbia · ² University of California, Los Angeles

Abstract

The effect of financial policy on a firm’s incentives to maintain its reputation for producing a high-quality product is analyzed. It is demonstrated that in certain situations debt will reduce a firm’s ability to credibly offer high-quality products and, as a consequence, will reduce its value. However, for firms with assets that have high salvage values in liquidation, debt may increase their ability to credibly offer high-quality products and, therefore, increase their values.

DOI

10.1093/rfs/4.1.175

Volume

4

Issue

1

Pages

175-200

Language

en

Sources

openalex crossref

Cite

APA 7 MLA 9 Chicago (author–date) Harvard Elsevier Harvard (JFE, JBF…) The Accounting Review Academy of Management American Marketing Association INFORMS (Management Science) Copy citation Copied ✓