Supplier concentration and the speed of capital structure adjustment

Yi Liu, Kai Wu, Sirui Ruan and Maher Kassar

Pacific-Basin Finance Journal, 2024, vol. 85, issue C

Abstract: Using a large sample of A-share Chinese firms from 2012 to 2019, we show a positive relationship between supplier concentration and leverage adjustment speed. This positive relationship is unidirectional and primarily concentrated among over-leveraged firms rather than among under-leveraged ones. Moreover, the effect of supplier concentration is more pronounced in firms with greater bargaining power over suppliers. A plausible channel is the monitoring role imposed by suppliers, which mitigates the firm’s agency conflicts by reducing (1) information asymmetry between informed managers and uninformed market participants and (2) management opportunism and slacking. Further, we show that firms with higher supplier concentrations are more active in the security market due to having lower agency costs. Our findings demonstrate the crucial role of customer–supplier relationships in a firm’s capital structure dynamics.

Keywords: Supplier concentration; Capital structure adjustment; Monitoring role; Agency conflicts (search for similar items in EconPapers)
JEL-codes: G30 G32 (search for similar items in EconPapers)
Date: 2024
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:pacfin:v:85:y:2024:i:c:s0927538x24000799

DOI: 10.1016/j.pacfin.2024.102328

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