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Risk along the supply chain: Geographic proximity and corporate risk taking

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  • Huang, Yichu
  • Fan, Yaoyao

Abstract

This study investigates the effect of supplier-customer geographic proximity on corporate risk taking. We find strong evidence that supplier-customer geographic proximity reduces supplier firms risk taking. To establish causality, we investigate plausibly exogenous variation in geographic proximity caused by new built high-speed railway connections between suppliers and their customers in China. The negative effect of supplier-customer geographic proximity on suppliers’ risk taking is more prominent when the suppliers have lower bargaining power and higher information asymmetry. These findings imply that the monitoring and information sharing are possible underlying channels, through which supplier-customer geographic proximity influences suppliers risk taking.

Suggested Citation

  • Huang, Yichu & Fan, Yaoyao, 2022. "Risk along the supply chain: Geographic proximity and corporate risk taking," Finance Research Letters, Elsevier, vol. 50(C).
    • Handle: RePEc:eee:finlet:v:50:y:2022:i:c:s1544612322003737
    DOI: 10.1016/j.frl.2022.103150
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    References listed on IDEAS

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    Cited by:

    1. Liang, Fangzhi & Yao, Zhenye & Yang, Danqin & Xu, Hanwen, 2023. "The Economic Diffusion Radius of High-Speed Railway Stations," Finance Research Letters, Elsevier, vol. 55(PB).
    2. Feng Huang & Jie Gao, 2022. "Customer and Tax Avoidance: How Does Customer Geographic Proximity Affect a Supplier’s Tax Avoidance?," Sustainability, MDPI, vol. 14(22), pages 1-30, November.
    3. Zhu, Ying & Huang, Ke, 2023. "Customers’ litigation risk and suppliers’ cash holding decision: From the perspective of risk contagion," Finance Research Letters, Elsevier, vol. 55(PB).

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    More about this item

    Keywords

    Geographic proximity; Corporate risk; Supply chain;
    All these keywords.

    JEL classification:

    • D85 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Network Formation
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G41 - Financial Economics - - Behavioral Finance - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets

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