Financial distress and customer-supplier relationships

Yili Lian

Journal of Corporate Finance, 2017, vol. 43, issue C, 397-406

Abstract: Using a customer-supplier matched sample from 1980 to 2014, I study the role of customer-supplier relationships on suppliers' financial distress. If a significant amount of a supplier's sales is tied to a major customer, the supplier's financial health is influenced by the major customer's financial conditions. I find that a supplier's probability of financial distress is positively related to its major customer's financial distress status. This relation persists up to two years after a major customer is in financial distress. Further, I show that the relationship is more pronounced when customer-supplier relationships are stronger, when a major customer is more likely to fail in the future, and when the supplier makes unique products. The results highlight the importance of understanding customer-supplier relationships when analyzing a firm's probability of financial distress.

Keywords: Customer-supplier relationships; Financial distress (search for similar items in EconPapers)
JEL-codes: G30 G33 (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (42)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:corfin:v:43:y:2017:i:c:p:397-406

DOI: 10.1016/j.jcorpfin.2017.02.006

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