The Effect of Supply Chain Power on Bank Financing

61 Pages Posted: 4 Dec 2013 Last revised: 1 Jul 2022

See all articles by Mohammad M. Rahaman

Mohammad M. Rahaman

Saint Mary's University - Sobey School of Business

P. Raghavendra Rau

University of Cambridge

Ashraf Al Zaman

Sobey School of Business, St. Mary's University, Canada; Saint Mary's University

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

Rahaman, Mohammad M. and Rau, P. Raghavendra and Zaman, Ashraf Al and Zaman, Ashraf Al, The Effect of Supply Chain Power on Bank Financing (December 1, 2019). Journal of Banking & Finance, 114 (May 2020) 105801., Available at SSRN: https://ssrn.com/abstract=2362363 or http://dx.doi.org/10.2139/ssrn.2362363

Mohammad M. Rahaman

Saint Mary's University - Sobey School of Business ( email )

Halifax, Nova Scotia B3H 3C3
Canada

P. Raghavendra Rau (Contact Author)

University of Cambridge ( email )

Cambridge Judge Business School
Trumpington Street
Cambridge, Cambridgeshire CB21AG
United Kingdom
3103626793 (Phone)

HOME PAGE: http://www.raghurau.com/

Ashraf Al Zaman

Saint Mary's University ( email )

Sobey Building 116
923 Robie Street
Halifax, Nova Scotia B3H 3C3
Canada
902-491-6272 (Phone)

Sobey School of Business, St. Mary's University, Canada ( email )

923 Robie Street
Halifax, Nova Scotia B3H 3C3
Canada
902-491-6272 (Phone)
902-496-8101 (Fax)

HOME PAGE: http://www.smu.ca/academic/sobey/biographies/faculty/ashraf-zaman.html

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