Capital Structure Along the Supply Chain: How Does Customer Leverage Affect Supplier Leverage Decisions?
University of South Carolina - Moore School of Business
University of South Carolina
May 2, 2011
Midwest Finance Association 2012 Annual Meetings Paper
We examine the leverage relationship of firms along the supply chain and find that suppliers' leverage is positively related to their customers' leverage. Moreover the positive leverage relationship is stronger if the customer firms have more bargaining power or if the supply chain requires less relation-specific investments. Our results suggest that firms use leverage as a bargaining tool against their suppliers or customers, and the importance of relation-specific investment reduces firm's incentive to use leverage for bargaining.
Number of Pages in PDF File: 38
Keywords: Capital structure, supply chain, Customers
JEL Classification: L14, G32working papers series
Date posted: June 15, 2011 ; Last revised: January 27, 2012
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