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Overlapping Ownership Along the Supply Chain

Published online by Cambridge University Press:  23 October 2023

Kayla M. Freeman Open the ORCID record for Kayla M. Freeman [Opens in a new window]
Kayla M. Freeman*
Affiliation:
University of Georgia, Terry College of Business
*
[email protected]
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Abstract

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I find overlapping institutional ownership (OIO) in a customer and supplier increases the duration of their supply chain relationship. Results are stronger when vertical holdup is more severe. A quasi-natural experiment around mergers of financial institutions provides causal evidence of OIO improving relationship survival rates. Concurrent with longer-lived relationships, valuations and innovation increase, consistent with OIO effects on relationship longevity being beneficial. I find evidence of OIO strengthening relationships via an internalization channel: With more OIO, partners cooperate more, with the supplier extending more trade credit. Overall, results indicate OIO strengthens vertical relationships by alleviating holdup problems.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , First View , pp. 1 - 30
Creative Commons
Creative Common License - CCCreative Common License - BYCreative Common License - NCCreative Common License - SA
This is an Open Access article, distributed under the terms of the Creative Commons Attribution-NonCommercial-ShareAlike licence (http://creativecommons.org/licenses/by-nc-sa/4.0), which permits non-commercial re-use, distribution, and reproduction in any medium, provided the same Creative Commons licence is used to distribute the re-used or adapted article and the original article is properly cited. The written permission of Cambridge University Press must be obtained prior to any commercial use.
Copyright
© The Author(s), 2023. Published by Cambridge University Press on behalf of the Michael G. Foster School of Business, University of Washington

Footnotes

I especially thank an anonymous referee and Jarrad Harford (the editor) for their valuable feedback, and Matthew Billett for invaluable discussions and feedback. I am grateful to Edward Fee, Janet Gao, and Yixin Liu for providing the customer–supplier data used in this study. I also thank Azi Ben-Rephael, Ryan Brewer, Andrew Ellul, Janet Gao, Eitan Goldman, Isaac Hacamo, Charles Hadlock, Jie (Jack) He, Kristoph Kleiner, Jeffry Netter, Annette Poulsen, Veronika Pool, Martin Schmalz, Charles Trzcinka, Wenyu Wang, Jun Yang, and conference participants at the American Finance Association, Financial Management Association, and Eastern Financial Association, and brownbag participants at Indiana University for their advice and suggestions.

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