Essays on the Financial Implications of Economically Linked Firms
Abstract
This dissertation consists of two topics on the financial implications of economically linked firms. The Chapter 1 examines the impact of supply chain concentration on purchasing firm’s financing costs. I find that purchasing firms engaging in less concentrated supply chain structure are subject to higher risk and cost of equity. This effect is more pronounced when the supplier’s financial performance deteriorates or when the purchasing firm’s purchase demand is large. I also provide evidence that lower supply chain concentration increases purchasing firm’s cost of debt. Lenders charge higher interests on the corporate loans as their compensation for the additional risk implied from less concentrated supply chain structure, in particular when the loan is unsecured. Finally, my results are robust to controlling the effect of supply chain diversification and endogenous issues. The Chapter 2 investigates the impact of customer horizontal mergers on supplier’s cash holdings. I show that the suppliers strategically reduce their cash holdings after the merger to counteract the increased buying power from the merged customers. This effect is more pronounced when the supplier is sale reliant on the merging customers and less pronounced when the supplier operates in a concentrated industry. Further, consistent with the prediction of bargaining power hypothesis of cash holdings, I find that cash reducing suppliers experience higher post-merger cash flow margin than cash increasing suppliers. Finally, I show that to credibly reduce the liquidity, the suppliers are more likely to use cash reserves to finance their R&D investments, leading to a higher cash-R&D sensitivity after the merger.
Subject Area
Finance
Recommended Citation
Wei, Chao, "Essays on the Financial Implications of Economically Linked Firms" (2021). ETD Collection for University of Texas, El Paso. AAI28491242.
https://scholarworks.utep.edu/dissertations/AAI28491242