NEW PRODUCT DEVELOPMENT, ADVERTISING AND COUPON STRATEGY UNDER DEBT FINANCING

摘要

The authors show that when low-valuation buyers are always important the financially leveraged manufacturer tends to over-provide product quality and price too high, when compared to its all-equity counterpart. Financial leverage is shown to dampen the firm's advertising incentive when consumers have similar coupon redemption costs and quality provision for the new product is not very costly. The impact of financial leverage on coupon strategy is less clear-cut: if profit maximization requires that the firm serve all consumers in each demand state, then high financial leverage induces the firm to issue a very large coupon and to bet on a low redemption rate; but if profit maximization requires that the firm abandon the low-valuation consumers in the high-demand state, then high financial leverage induces the firm to stop issuing coupons.