Selling durables: Financial flexibility for limited cost pass-through

Kyeong Hun Lee, David C. Mauer and Emma Q. Xu

Journal of Corporate Finance, 2022, vol. 75, issue C

Abstract: We test whether limited cost pass-through encourages durable goods producers to build financial flexibility. We find that firms with more durable output have larger cash balances and marginal value of cash, lower propensity to pay dividends, and less financial leverage. The link between durable goods and financial flexibility is equally strong in low and zero leverage firms and is reduced in more concentrated industries and when the firm has captive financing activity. Consistent with high demand elasticity driving limited cost pass-through, we find that a large increase in input costs decreases markups and financial slack of durable goods firms in comparison to nondurable goods and services firms.

Keywords: Durable goods; Cost pass-through; Financial flexibility (search for similar items in EconPapers)
JEL-codes: E32 G31 G32 G35 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:corfin:v:75:y:2022:i:c:s0929119922000712

DOI: 10.1016/j.jcorpfin.2022.102228

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