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
Date Written: September 7, 2017
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: Suggested Citation