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Do firms' relationships with principal customers/suppliers affect shareholders' income?

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  • Wang, Jin

Abstract

In this paper, we examine whether a firm's relationship with its principal customers/suppliers affects its payout policies. A firm has customer–supplier relationships when its business depends on a small number of major customers/suppliers. The extant literature indicates two channels through which customer–supplier relationships might negatively affect a firm's dividend payments: 1) the high financial distress costs associated with relationship-specific investments and 2) the information certification effect of the principle customer. Consistent with expectations, our study reveals a negative relationship between a firm's dependence on customer–supplier relationships and its dividend payments. This result is robust to various model specifications and consistent with evidence regarding the time-series properties of dividends. Moreover, we find that high financial distress costs associated with relationship-specific investments are the key channel through which a firm's customer–supplier relationship affects its dividend payments. Overall, our results suggest that a firm's relationship with its non-financial stakeholders, such as principal customers/suppliers, is an important determinant of its shareholders' income.

Suggested Citation

  • Wang, Jin, 2012. "Do firms' relationships with principal customers/suppliers affect shareholders' income?," Journal of Corporate Finance, Elsevier, vol. 18(4), pages 860-878.
    • Handle: RePEc:eee:corfin:v:18:y:2012:i:4:p:860-878
    DOI: 10.1016/j.jcorpfin.2012.06.007
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    More about this item

    Keywords

    Dividend; Customer; Supplier; Financial distress; Information certification;
    All these keywords.

    JEL classification:

    • G35 - Financial Economics - - Corporate Finance and Governance - - - Payout Policy

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