Financing Durable Assets
43 Pages Posted: 8 Aug 2015 Last revised: 9 Jun 2018
There are 3 versions of this paper
Financing Durable Assets
Financing Durable Assets
Date Written: May 2018
Abstract
This paper studies how the durability of assets affects financing. We show that more durable assets require larger down payments making them harder to finance, because durability affects the price of assets and hence the overall financing need more than their collateral value. Durability affects technology adoption, the choice between new and used capital, and the rent versus buy decision. Constrained firms invest in less durable assets and buy used assets. More durable assets are more likely to be rented. Economies with weak legal enforcement invest more in less durable, otherwise dominated assets and are net importers of used assets.
Keywords: Durability, financial constraints, collateral, vintage capital, technology adoption, leasing
JEL Classification: D25, E22, G32, O16, G31, D86
Suggested Citation: Suggested Citation