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Binding ties in the supply chain and supplier capital structure

Author

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  • Kadapakkam, Palani-Rajan
  • Oliveira, Mauro

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.

Suggested Citation

  • Kadapakkam, Palani-Rajan & Oliveira, Mauro, 2021. "Binding ties in the supply chain and supplier capital structure," Journal of Banking & Finance, Elsevier, vol. 130(C).
    • Handle: RePEc:eee:jbfina:v:130:y:2021:i:c:s0378426621001424
    DOI: 10.1016/j.jbankfin.2021.106183
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    References listed on IDEAS

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    Cited by:

    1. Gu, Jing & Shi, Xinyu & Wang, Junyao & Xu, Xun, 2024. "Examining the impact of market power discrepancy between supply chain partners on firm financial performance," International Journal of Production Economics, Elsevier, vol. 268(C).
    2. Jandik, Tomas & Salikhova, Tatiana, 2023. "The effect of social connections on capital structure in supplier-customer relationships," Journal of Corporate Finance, Elsevier, vol. 79(C).
    3. Hupka, Yuri, 2022. "Leverage and the global supply chain," Finance Research Letters, Elsevier, vol. 50(C).

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    More about this item

    Keywords

    Buyer-supplier relationship; Capital structure; Supply chain; Professional ties;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation
    • G35 - Financial Economics - - Corporate Finance and Governance - - - Payout Policy

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