Corporate capital structure and the characteristics of suppliers and customers

We investigate the link between a firm's leverage and the characteristics of its suppliers and customers. Specifically, we examine whether firms use decreased leverage as a commitment mechanism to induce suppliers/customers to undertake relationship-specific investments. We find that the firm&#...

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Bibliographic Details
Published inJournal of financial economics Vol. 83; no. 2; pp. 321 - 365
Main Authors Kale, Jayant R., Shahrur, Husayn
Format Journal Article
LanguageEnglish
Published Amsterdam Elsevier B.V 01.02.2007
Elsevier
Elsevier Sequoia S.A
SeriesJournal of Financial Economics
Subjects
Buyer power
Capital structure
Customers
Financial leverage
Implicit contracts
Investment
Market power
Relationship-specific investments
Studies
Suppliers
Supply
G33
G32
Relationship-specific investments
Market power
L22
Implicit contracts
Buyer power
L14
Capital structure
L13
L24
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Summary:We investigate the link between a firm's leverage and the characteristics of its suppliers and customers. Specifically, we examine whether firms use decreased leverage as a commitment mechanism to induce suppliers/customers to undertake relationship-specific investments. We find that the firm's leverage is negatively related to the R&D intensities of its suppliers and customers. We also find lower debt levels for firms operating in industries in which strategic alliances and joint ventures with firms in supplier and customer industries are more prevalent. Consistent with a bargaining role for debt, we find a positive relation between firm debt level and the degree of concentration in supplier/customer industries.
Bibliography:ObjectType-Article-2
SourceType-Scholarly Journals-1
ObjectType-Feature-1
content type line 23
ISSN:0304-405X
1879-2774
DOI:10.1016/j.jfineco.2005.12.007