Product Market Competition and Corporate Relocations: Evidence from the Supply Chain
88 Pages Posted: 15 Aug 2020 Last revised: 16 Nov 2021
Date Written: February 2, 2021
We show that intensified competition changes the location of business activity and, in turn, affects supply chain relationships. Using establishment-level data, we find that when upstream product markets become more competitive, suppliers are more likely to relocate their establishments closer to customers. Following the supplier’s relocation, its sales to the customer increase, its relationship with the customer is less likely to be terminated, and its innovation is more aligned with the customer’s innovation. The relocated supplier also experiences more analyst following and institutional ownership that are in common with the customer and is more likely to issue equity than debt. However, the improved relationship, by causing the supplier to engage more in innovation dedicated to the customer, adversely affects creative innovation, which is known to drive growth.
Keywords: Establishment Relocation, Supply Chain, Product Market Competition, Knowledge Spillover
JEL Classification: G30, L1, O3
Suggested Citation: Suggested Citation