Supply Network Fragility, Inventory Investment, and Corporate Liquidity

Fisher College of Business Working Paper No. 2023-03-025

Charles A. Dice Center Working Paper 2023-25

92 Pages Posted: 17 Nov 2023 Last revised: 2 Feb 2024

See all articles by Leandro Sanz

Leandro Sanz

Ohio State University (OSU) - Department of Finance

Date Written: November 16, 2023

Abstract

This study uses a novel dataset of over 11,000 foreign suppliers to U.S. manufacturers to investigate the impact of supply network fragility on corporate policies. The scarcity of suppliers offering specialized inputs emerges as a key driver of fragility. Both theoretical and empirical evidence indicate that firms with fragile supply networks maintain more input inventories, less cash, and higher leverage. Moreover, plausible exogenous variation in fragility from technology adoption and disruptions supports a causal interpretation of the results. My findings indicate that because specialized inputs lack a spot market post-disruptions, firms with fragile supply networks favor operational over financial hedging.

Keywords: Production networks, global supply chains, corporate liquidity, inventories

JEL Classification: G31, G32, F23, L23

Suggested Citation

Sanz, Leandro, Supply Network Fragility, Inventory Investment, and Corporate Liquidity (November 16, 2023). Fisher College of Business Working Paper No. 2023-03-025, Charles A. Dice Center Working Paper 2023-25, Available at SSRN: https://ssrn.com/abstract=4635488 or http://dx.doi.org/10.2139/ssrn.4635488

Leandro Sanz (Contact Author)

Ohio State University (OSU) - Department of Finance ( email )

2100 Neil Avenue
Columbus, OH 43210-1144
United States

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