Binding ties in the supply chain and supplier capital structure

Palani-Rajan Kadapakkam and Mauro Oliveira

Journal of Banking & Finance, 2021, vol. 130, issue C

Abstract: Prior research documents that suppliers with higher sales concentration have lower leverage ratios, consistent with lenders’ heightened concerns about a large customer switching suppliers. We study whether a supplier's binding ties to its significant customers help mitigate these concerns. We assess the supplier-customer bond using the age of the relationship and the presence of professional network links between directors and officers of the two firms. We find evidence that binding ties boost suppliers’ leverage ratios suggesting that they reassure lenders about the stability of the supplier's operations. We also find that the effect of relationship age is more relevant for suppliers that operate in more competitive industries and have low levels of relationship specific investments, thus exposing them to higher switching risks.

Keywords: Buyer-supplier relationship; Capital structure; Supply chain; Professional ties (search for similar items in EconPapers)
JEL-codes: G32 G33 G35 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:130:y:2021:i:c:s0378426621001424

DOI: 10.1016/j.jbankfin.2021.106183

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