Capital Structure Decisions Along the Supply Chain: Evidence from Import Competition

Journal of International Business Studies, 50, 873-894, 2019

45 Pages Posted: 30 Nov 2016 Last revised: 2 Jan 2021

See all articles by Qianqian Huang

Qianqian Huang

City University of Hong Kong

Ryoonhee Kim

Korea Advanced Institute of Science and Technology (KAIST)

Date Written: November 28, 2016

Abstract

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

Huang, Qianqian and Kim, Ryoonhee, Capital Structure Decisions Along the Supply Chain: Evidence from Import Competition (November 28, 2016). Journal of International Business Studies, 50, 873-894, 2019, Available at SSRN: https://ssrn.com/abstract=2876958 or http://dx.doi.org/10.2139/ssrn.2876958

Qianqian Huang

City University of Hong Kong ( email )

83 Tat Chee Avenue
Kowloon
Hong Kong
852-3442-0284 (Fax)

Ryoonhee Kim (Contact Author)

Korea Advanced Institute of Science and Technology (KAIST) ( email )

Daejeon
Korea, Republic of (South Korea)

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