Banking Relationships and the Formation of Supply-Chain Relationships
74 Pages Posted: 15 Mar 2019
Date Written: December 31, 2018
I study the effect of banking relationships on the formation of new supply-chain relationships. I find that common banking relationships between a firm and a potential supplier increase the probability that the potential supplier will be selected to start a new supply-chain relationship. The effect is driven by firms in low-innovation industries. However, when accounting for the endogeneity of supply-chain and banking relationships, using bank branch location as an instrument for common banking relationships, the effect of common banks is negative, suggesting that supply-chain partners avoid common lenders for fear that sensitive information might leak through the bank to the supply-chain partner.
JEL Classification: G20; G21; G30; D23; D57; L10; L14
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