Corporate Finance Through Rewards Programs

Rewards programs (RPs) are widely prevalent in practice and typically analyzed in economic research for their role in boosting business. This paper uncovers a novel finance role of RPs. We document stylized facts about RPs in travel industries, which lend support to this role. We build a dynamic model of RP financing within prevailing institutional framework of RPs, which give consumers substantial flexibility over redemption timing. Such flexibility renders the raised funds endogenous and dependent on firms’ issuance policies and business charac- teristics. Based on this feature, the model clarifies distinctive features of RP financing and explains real-world patterns of RPs from a finance perspective.