Belarusian Economic Research and Outreach Center

Open Lecture with Kyeong H. Lee

BEROC invites you to the open lecture of Dr. Kyeong H. Lee (Associate Professor of Finance at the Norwegian School of Economics) "Product Durability, Cost Pass-Through, and Corporate Policies" that will take place on March 21.

Date and time: March 21, 16:00 - 18:00.

Place: IBB, pr. Gazety Pravda 11, room A2/Bonn.

Language - English.

Registration is required.

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At the lecture Dr. Kyeong H. Lee will present his research "Product Durability, Cost Pass-Through, and Corporate Policies".

ABSTRACT:

The longer life and major consumer expenditure attributes of durable goods result in larger price elasticities of demand for durable goods than for non-durable goods and services. This presents a challenge to durable goods producers because it negatively affects their ability to adjust product prices when input costs increase. We find that firms with more durable output have lower financial leverage, higher cash balances and marginal value of cash, lower propensity to pay dividends, and lower dividend payouts when they pay dividends. We also find that durable goods firms set higher margins (markups) ex ante, so that they have room to absorb cost shocks. In a quasi-natural experiment involving input price shocks, we find that markups for durable goods firms decline, cash balances decrease, leverage increases, and product quality is sacrificed following significant increases in input prices. This paper contributes to the industrial organization view of the firm by showing that demand for durable goods helps shape firms’ financing decisions and product pricing strategies.