Financial leverage and bargaining power with suppliers: Evidence from leveraged buyouts

David T. Brown, C. Edward Fee and Shawn Thomas ()

Journal of Corporate Finance, 2009, vol. 15, issue 2, 196-211

Abstract: This paper investigates whether leveraged buyouts (LBOs) increase the bargaining power of firms with their suppliers. We find that suppliers to LBO firms experience significantly negative abnormal returns at the announcements of downstream LBOs. We also find that suppliers who have likely made substantial relationship-specific investments are more negatively affected, both in terms of abnormal stock returns and reduced profit margins, than suppliers of commodity products or transitory suppliers. Interestingly, leveraged recapitalization announcements are not associated with negative returns to suppliers, suggesting that increased leverage without an accompanying change in organizational form does not, on average, lead to price concessions from suppliers.

Keywords: Bargaining; power; Leveraged; buyout; Suppliers (search for similar items in EconPapers)
Date: 2009
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Citations: View citations in EconPapers (30)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:corfin:v:15:y:2009:i:2:p:196-211

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