Supply-Chain Spillover Effects and the Interdependence of Firm Financing Decisions

57 Pages Posted: 15 Mar 2010 Last revised: 27 Sep 2014

William C. Johnson

Suffolk University - Sawyer School of Management

Jun-Koo Kang

Nanyang Technological University (NTU) - Nanyang Business School

Ronald W. Masulis

University of New South Wales - Australian School of Business; 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 21, 2014

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

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

William C. Johnson (Contact Author)

Suffolk University - Sawyer School of Management ( email )

Boston, MA 02108
United States

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 - Australian School of Business ( email )

Sydney, NSW 2052
Australia
612-9385-5860 (Phone)
612-9385-6347 (Fax)

European Corporate Governance Institute (ECGI) ( email )

c/o ECARES ULB CP 114
B-1050 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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