Financial distress and customer-supplier relationships

Yili Lian

Research output: Contribution to journalArticlepeer-review

20 Scopus citations

Abstract

Using a customer-supplier matched sample from 1980 to 2014, I study the role of customer-supplier relationships on suppliers' financial distress. If a significant amount of a supplier's sales is tied to a major customer, the supplier's financial health is influenced by the major customer's financial conditions. I find that a supplier's probability of financial distress is positively related to its major customer's financial distress status. This relation persists up to two years after a major customer is in financial distress. Further, I show that the relationship is more pronounced when customer-supplier relationships are stronger, when a major customer is more likely to fail in the future, and when the supplier makes unique products. The results highlight the importance of understanding customer-supplier relationships when analyzing a firm's probability of financial distress.

Original languageEnglish (US)
Pages (from-to)397-406
Number of pages10
JournalJournal of Corporate Finance
Volume43
DOIs
StatePublished - Apr 1 2017

All Science Journal Classification (ASJC) codes

  • Business and International Management
  • Finance
  • Economics and Econometrics
  • Strategy and Management

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