Product Warranty Claims as Negative Signals in the Financial Resource Market: The Role of Internal and External Signalling Environments

Abstract

Although firms expend significant resources to fulfil customer product warranty claims, their financial consequences have received scant attention in the literature. Moreover, the limited research on this topic has primarily focused on financial performance, overlooking whether warranty costs act as a negative signal to external financial resource‐supplying entities, such as lenders, and hinder a firm's ability to acquire resources, thereby leading to financial resource constraints. Drawing on signalling theory and resource dependence theory, and using data from 2003 to 2021 covering 715 firms across 155 industries and involving 10,577 firm‐year observations, this study demonstrates that a firm's product warranty claim rate is positively associated with its financial resource constraints. Furthermore, the research demonstrates that marketing capability and slack resources attenuate the relationship between product warranty claim rate and financial resource constraints. Additionally, we document that while a firm's external environmental dimensions, such as market munificence and market dynamism, weaken the positive relationship between the focal variables, the market concentration dimension accentuates this relationship. These findings have significant theoretical and managerial implications, as they demonstrate that a higher warranty claim rate is interpreted as a negative signal by financial resource‐supplying entities, and the interpretation of this signal depends on both internal and external contingencies.