57 Pages Posted: 15 Mar 2010 Last revised: 27 Sep 2014
Date Written: September 21, 2014
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
Suggested Citation: Suggested Citation
Johnson, William C. and Kang , Jun-Koo and Masulis, Ronald W. and Yi, Sangho, Supply-Chain Spillover Effects and the Interdependence of Firm Financing Decisions (September 21, 2014). 5th Annual Conference on Empirical Legal Studies Paper. Available at SSRN: https://ssrn.com/abstract=1571371 or http://dx.doi.org/10.2139/ssrn.1571371