Product Sales Incentive Spillovers to the Lending Market

49 Pages Posted: 28 Jan 2021

See all articles by Mark Jansen

Mark Jansen

University of Utah - Department of Finance

Hieu Nguyen

University of Utah - David Eccles School of Business

Lamar Pierce

Washington University, Saint Louis - John M. Olin School of Business

Jason Snyder

University of California, Berkeley - Haas School of Business - Business and Public Policy

Date Written: January 7, 2021

Abstract

We examine how deadline-based convex incentives in physical product markets can affect the credit markets that finance these products. Auto dealerships respond to monthly sales targets in manufacturer incentive programs by shifting borrowers from used to new cars at the end of the month. End-of-month loans default more often, particularly among financially constrained buyers of new cars. At month-end, dealerships sway financially unsophisticated buyers to buy new cars instead of more reliable models that are available as used vehicles. We find no evidence that lenders or dealerships are hurt by this increased default risk from manufacturers' incentives.

Keywords: household finance, incentives, auto loans, subprime, agency problems

JEL Classification: D82, G29, G32, G34, L14, R30

Suggested Citation

Jansen, Mark and Nguyen, Hieu and Pierce, Lamar and Snyder, Jason, Product Sales Incentive Spillovers to the Lending Market (January 7, 2021). Available at SSRN: https://ssrn.com/abstract=3762227 or http://dx.doi.org/10.2139/ssrn.3762227

Mark Jansen (Contact Author)

University of Utah - Department of Finance ( email )

David Eccles School of Business
Salt Lake City, UT 84112
United States
801-213-6910 (Phone)

HOME PAGE: http://eccles.utah.edu/team/mark-jansen/

Hieu Nguyen

University of Utah - David Eccles School of Business ( email )

1645 E Campus Center Dr
Salt Lake City, UT 84112-9303
United States

Lamar Pierce

Washington University, Saint Louis - John M. Olin School of Business ( email )

One Brookings Drive
Campus Box 1133
St. Louis, MO 63130-4899
United States
314-935-5205 (Phone)

Jason Snyder

University of California, Berkeley - Haas School of Business - Business and Public Policy ( email )

545 Student Services Building
Berkeley, CA 94720
United States

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