Capital Structure Decisions Along the Supply Chain: Evidence from Import Competition
Journal of International Business Studies, Forthcoming
45 Pages Posted: 30 Nov 2016 Last revised: 7 Jun 2019
Date Written: November 28, 2016
This paper studies the propagation of import competition shock along the supply chain which leads firms to alter their capital structure. We find that a large reduction in import tariffs in a customer industry induces suppliers to choose more conservative financial policies via transmission of contraction and distress risk. We show that firms lower their leverage more when they are involved in higher relationship-specific investments with their customers and when they are more concerned about distress, and that firms adjust their leverage, mainly by issuing more equity. Firms also increase their cash holdings and limit their trade credit provision.
Keywords: customers, leverage, import competition
JEL Classification: D43, F12, G32, G33, L22
Suggested Citation: Suggested Citation