Effects of customer horizontal merger on supplier capital structure decisions

Mauro Oliveira and Palani‐Rajan Kadapakkam

International Review of Finance, 2021, vol. 21, issue 4, 1464-1491

Abstract: We study the impact of a significant customer's merger on the capital structure of suppliers using a sample of U.S. firms that merged with rivals in the same industry. The bargaining power theory of capital structure predicts that suppliers will increase debt to decrease the surplus available for negotiation when facing customers that gain buying power by increasing their size through mergers. We find that suppliers increase their financial leverage after the effective date of their customer's merger. This increase is economically significant, permanent, and unrelated to supplier merger activity. We also find that greater concentration in the supplier's industry and higher supplier market power are associated with lower increases in supplier's leverage. Overall, the empirical evidence is consistent with suppliers increasing their financial leverage to fortify their bargaining power.

Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://doi.org/10.1111/irfi.12337

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bla:irvfin:v:21:y:2021:i:4:p:1464-1491

Ordering information: This journal article can be ordered from
http://www.blackwell ... bs.asp?ref=1369-412X

Access Statistics for this article

International Review of Finance is currently edited by Bruce D. Grundy, Naifu Chen, Ming Huang, Takao Kobayashi and Sheridan Titman

More articles in International Review of Finance from International Review of Finance Ltd.
Bibliographic data for series maintained by Wiley Content Delivery ().