Risk along the supply chain: Geographic proximity and corporate risk taking

Yichu Huang and Yaoyao Fan

Finance Research Letters, 2022, vol. 50, issue C

Abstract: This study investigates the effect of supplier-customer geographic proximity on corporate risk taking. We find strong evidence that supplier-customer geographic proximity reduces supplier firms risk taking. To establish causality, we investigate plausibly exogenous variation in geographic proximity caused by new built high-speed railway connections between suppliers and their customers in China. The negative effect of supplier-customer geographic proximity on suppliers’ risk taking is more prominent when the suppliers have lower bargaining power and higher information asymmetry. These findings imply that the monitoring and information sharing are possible underlying channels, through which supplier-customer geographic proximity influences suppliers risk taking.

Keywords: Geographic proximity; Corporate risk; Supply chain (search for similar items in EconPapers)
JEL-codes: D85 G32 G41 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (9)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:50:y:2022:i:c:s1544612322003737

DOI: 10.1016/j.frl.2022.103150

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