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Supply chain vertical common ownership and cost of loans

Author

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  • Tian, Haowen
  • Wang, Junkai
  • Wu, Sirui

Abstract

This study explores how vertical common ownership reduces supply chain risk and influences creditors' decisions, focusing on the cost of loans. Findings reveal that creditors view such firms as less likely to default, evidenced by lower loan spreads. This effect is stronger for suppliers with more relationship-specific investments, weaker bargaining power, higher information asymmetry, and long-term common institutional ownership. Results remain robust through quasi-natural experiments from financial institutions' M&As, supplier-customer pair analyses, etc. We also compare vertical common ownership with the horizontal one and demonstrate its incremental contributions. Moreover, the fraction of customer sales and the institutional investors' share ownership likely influence the likelihood of vertical common ownership, with our results consistently holding under Heckman analysis. Overall, the results suggest that vertical common ownership enhances coordination and monitoring, reducing risks and creditor risk premiums. The findings may offer valuable insights into managing supply chain risks and understanding their financial implications.

Suggested Citation

  • Tian, Haowen & Wang, Junkai & Wu, Sirui, 2024. "Supply chain vertical common ownership and cost of loans," Journal of Corporate Finance, Elsevier, vol. 89(C).
    • Handle: RePEc:eee:corfin:v:89:y:2024:i:c:s0929119924001391
    DOI: 10.1016/j.jcorpfin.2024.102677
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