Seasoned Equity Offerings and Customer-Supplier Relationships

5th Annual Conference on Empirical Legal Studies Paper (2010)

46 Pages Posted: 15 Mar 2010 Last revised: 5 Oct 2017

See all articles by William C. Johnson

William C. Johnson

Suffolk University - Sawyer School of Management; Vienna University of Economics and Business

Jun-Koo Kang

Nanyang Technological University (NTU) - Nanyang Business School

Ronald W. Masulis

University of New South Wales, Sydney; European Corporate Governance Institute (ECGI); Financial Research Network (FIRN); National University of Singapore (NUS) - Asian Bureau of Finance and Economic Research (ABFER)

Sangho Yi

Sogang University

Date Written: September 7, 2017

Abstract

We analyze equity financing decisions by firms with major customer relationships to assess whether major trading relationships create interdependence in policies and market values. We find supplier issuance decisions have significant negative effects for large customers, which become more pronounced when information asymmetry or economic dependence of suppliers and customers rise or when suppliers make larger relationship-specific investments or offer valuable product guarantees. Incentives to maintain major trading relationships appear to weaken after supplier equity offerings, leading to shorter trading relationships and declines in relationship-specific investments. We document clear evidence that major trading partners’ financial and investment policies are interdependent.

Keywords: Information revelation, product market relationship, seasoned equity offerings

JEL Classification: G30

Suggested Citation

Johnson, William C. and Kang, Jun-Koo and Masulis, Ronald W. and Yi, Sangho, Seasoned Equity Offerings and Customer-Supplier Relationships (September 7, 2017). 5th Annual Conference on Empirical Legal Studies Paper (2010). Available at SSRN: https://ssrn.com/abstract=1571371 or http://dx.doi.org/10.2139/ssrn.1571371

William C. Johnson (Contact Author)

Suffolk University - Sawyer School of Management ( email )

Boston, MA 02108
United States

Vienna University of Economics and Business ( email )

Welthandelsplatz 1
Vienna, Wien 1020
Austria

Jun-Koo Kang

Nanyang Technological University (NTU) - Nanyang Business School ( email )

Nanyang Avenue, Block S3-01b-54
Singapore, 639798
Singapore
(+65) 6790-5662 (Phone)
(+65) 6791-3697 (Fax)

HOME PAGE: http://www.nbs.ntu.edu.sg/nbs_corporate/divisions/bnf/index.asp

Ronald W. Masulis

University of New South Wales, Sydney ( email )

UNSW Business School
High St
Sydney, NSW 2052
Australia
612-9385-5860 (Phone)
612-9385-6347 (Fax)

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

National University of Singapore (NUS) - Asian Bureau of Finance and Economic Research (ABFER) ( email )

BIZ 2 Storey 4, 04-05
1 Business Link
Singapore, 117592
Singapore

Sangho Yi

Sogang University ( email )

Seoul 121-742
Korea, Republic of (South Korea)
82-2-705-8864 (Phone)

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