Optimal capital structure, bargaining, and the supplier market structure

Chu, Yongqiang

doi:10.1016/j.jfineco.2012.05.010

Cited by 66 publications

(31 citation statements)

References 17 publications

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“…These results suggest that bargaining power plays an important role in establishing the positive leverage relationship. The results also show that the marginal e®ect of bargaining power (evaluated at the sample mean of the customer's leverage) on the supplier's leverage is positive, which is consistent with the view that the customer bargaining power increases its supplier's incentive to use leverage as a bargaining tool (Kale and Shahrur, 2007;Hennessy and Livdan, 2009;Chu, 2012). Panel B of Table 5 shows similar results for book leverage.…”

Section: The E®ects Of the Customer's Bargaining Powersupporting

confidence: 77%

“…The price-cost margin is generally considered as a measure of industry competition, and therefore it can be used to measure the customer's ex-ante bargaining power (Kale and Shahrur, 2007;Chu, 2012). Furthermore, a higher price-cost margin can only come from two sources: a higher output price, a lower input cost, or both.…”

Section: Measures Of Ex-ante Bargaining Powermentioning

confidence: 99%

“…The bargaining theory argues that debt improves a¯rm's bargaining position against its customers or suppliers (e.g., Bronars and Deere, 1991;Dasgupta and Sengupta, 1993;Hennessy and Livdan, 2009;Chu, 2012). When a customer increases its leverage, it increases its bargaining power against its supplier.…”

Section: Introductionmentioning

confidence: 99%

“…Therefore, the bargaining theory predicts a positive leverage relationship between the supplier and its customer. However, the relation-speci¯c investment theory argues that debt discourages relationspeci¯c investments made by both the supplier and the customer (Kale and Shahrur, 2007;Hennessy and Livdan, 2009;Chu, 2012). To mitigate the debt-induced investment ine±ciency, the supplier will not increase its leverage when the customer increases leverage.…”

Section: Introductionmentioning

confidence: 99%

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Capital Structure Along the Supply Chain: How Does Customer Leverage Affect Supplier Leverage Decisions?

Chu

Wang

2017

Quart. J. of Fin.

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The bargaining theory of capital structure implies that when¯rms raise their leverage, their suppliers will raise their own leverage in response, so as to maintain strength in negotiations with important customers. In contrast, the theory of¯rm-speci¯c investments implies that when a customer raises its leverage, a¯rm will respond by lowering its own leverage to minimize the risk of bankruptcy. We test these theories by examining the relationship between the leverage decisions of suppliers and customers. We¯nd that a¯rm's leverage is positively associated with its customer's leverage. Moreover, consistent with the bargaining theory, we¯nd that the positive leverage relationship is stronger if the customer has a higher ex-ante bargaining power. We also¯nd some support for the relation-speci¯c investment theory of capital structure in that the positive leverage relationship is weaker if the supplier-customer relationship requires more relation-speci¯c investments.

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Section: The E®ects Of the Customer's Bargaining Powersupporting

confidence: 77%

Section: Measures Of Ex-ante Bargaining Powermentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

See 2 more Smart Citations

Capital Structure Along the Supply Chain: How Does Customer Leverage Affect Supplier Leverage Decisions?

Chu

Wang

2017

Quart. J. of Fin.

Self Cite

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“…Our results, which emphasize the importance of input complementarity and switching costs, provide a foundation for this comovement. In addition, our results relate to prior studies of the implications of product market relationships for firms' corporate policies (Titman 1984;Titman and Wessels 1988;MacKay and Phillips 2005;Kale and Shahrur 2007;Campello and Fluck 2007;Banerjee, Dasgupta, and Kim 2008;Chu 2012;Moon and Phillips 2014;Ahern and Harford 2014). A key result of this literature is that firms whose suppliers need to make relationship-specific investments hold less leverage to avoid imposing high liquidation costs on them.…”

Section: Quarterly Journal Of Economicsmentioning

confidence: 53%

Input Specificity and the Propagation of Idiosyncratic Shocks in Production Networks *

Barrot

Sauvagnat

2016

The Quarterly Journal of Economics

901

397

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This article examines whether firm-level idiosyncratic shocks propagate in production networks. We identify idiosyncratic shocks with the occurrence of natural disasters. We find that affected suppliers impose substantial output losses on their customers, especially when they produce specific inputs. These output losses translate into significant market value losses, and they spill over to other suppliers. Our point estimates are economically large, suggesting that input specificity is an important determinant of the propagation of idiosyncratic shocks in the economy. JEL Codes: L14, E23, E32.

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The effect of major customers' geographical distance on enterprise technology innovation: Evidence from China

et al. 2023

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Short‐distance major customers can capture information. Information is the key to bargaining. Therefore, short‐distance major customers undercut the price of innovation products. However, there is little research between major customers' distance and enterprise innovation. We find that short‐distance major customers are threats to enterprise innovation. IPDC and HSR weaken the relationship. Further research finds that the inhibitory effect of short‐distance major customers is more pronounced when the industry competition degree is high and enterprise market power is low. At distances of more than 1000 km, major customers are no longer threats. Distance is new to the literature about customer characteristics.

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Optimal capital structure, bargaining, and the supplier market structure

Cited by 66 publications

References 17 publications

Capital Structure Along the Supply Chain: How Does Customer Leverage Affect Supplier Leverage Decisions?

Capital Structure Along the Supply Chain: How Does Customer Leverage Affect Supplier Leverage Decisions?

Input Specificity and the Propagation of Idiosyncratic Shocks in Production Networks *

The effect of major customers' geographical distance on enterprise technology innovation: Evidence from China

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