The Effect of Supply Chain Power on Bank Financing
61 Pages Posted: 4 Dec 2013 Last revised: 1 Jul 2022
Date Written: December 1, 2019
Abstract
Using comprehensive bank-loan contract information, we show that the power of a firm relative to its suppliers eases its terms of bank financing, specifically through lower loan prices and less restrictive non-price contract terms. Our results are robust to controlling for product-market competition. Supply chain power enables the firm to achieve a greater level of control over its inventory, constituting a significant portion of the reduction in its overall loan cost. We argue that it is important to consider supply-chain related issues when analyzing the external-financing capacity of firms.
Keywords: Supply Chain; Cost of Debt; Bank financing; Product-market Competitiveness; Inventory Control
JEL Classification: G00, G21, G30, G32, L14, L23
Suggested Citation: Suggested Citation