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Customers’ litigation risk and suppliers’ cash holding decision: From the perspective of risk contagion

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  • Zhu, Ying
  • Huang, Ke

Abstract

This study investigates the contagion effect of litigation risk through supply chain. We find strong evidence that customers’ litigation risk increases suppliers’ cash holding, and this contagion effect only exists when customers get involved in lawsuits as defendant. We further find that customers’ litigation risk reduces trade credit for customers, increases financing cost and operating risk for both customers and suppliers, which are underlying channels. Heterogeneity analysis shows that the risk contagion effect is more significant in samples with short supplier-customer geographic distance, private suppliers, and suppliers with strong bargaining power.

Suggested Citation

  • 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).
    • Handle: RePEc:eee:finlet:v:55:y:2023:i:pb:s1544612323003458
    DOI: 10.1016/j.frl.2023.103973
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    References listed on IDEAS

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    More about this item

    Keywords

    Litigation risk; Cash holding; Supply chain; Risk contagion;
    All these keywords.

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • M10 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - General

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