Effects of Shocks and Stability of Supplier-Customer Relationships on Suppliers' Capital Structure

摘要

This dissertation explores the impact of supply chain relationships on the capital structure of suppliers. The first essay investigates how financial distress of a significant customer affects the capital structure of its suppliers. Bargaining power theory states that a firm can use higher financial leverage to fortify its bargaining power with counterparties. Consistent with this bargaining power hypothesis, the investigation finds that suppliers increase their financing leverage before their customers file for Chapter 11 bankruptcy. The increased leverage reduces their financial surplus during negotiations with their distressed customers. The second essay studies the impact of customers' horizontal mergers or acquisitions on suppliers' capital structures. Empirical analysis reveals that suppliers increase their leverage after the effective date of the mergers. This increase is economically significant, permanent, and unrelated to new investments. Also, greater concentration in the supplier's industry is associated with lower increases in supplier's leverage. These results are consistent with suppliers increasing financial leverage to fortify their bargaining power with customers that gain buying power by merging with rivals. The third essay tests if binding ties between a supplier and its significant customers allow a supplier to increase financial leverage. Concentration of sales to a few customers exposes suppliers to the risk of losing significant amount of sales if these customers switch suppliers. Previous research finds a negative relationship between supplier leverage and concentration of its sales. Binding ties between suppliers and customers should decrease switching risk, thus enabling suppliers to borrow more. This study employs two measures of binding ties: age of the supplier-customer relationship and the existence of professional network links between directors and officers of the two firms. The evidence indicates that suppliers' leverage ratios are positively associated with these factors. Thus, binding ties help to reassure lenders about the stability of the supplier's operations and allow the supplier to increase financial leverage.