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Corporate Leverage and Specialized Investments by Customers and Suppliers

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  • Jayant R. Kale
  • Husayn Shahrur

Abstract

A company's performance in the product market depends in part on the willingness of its suppliers and customers to invest in the relationship-to make specialized investments of human as well as financial capital that may have no value outside that relationship. Consistent with Stewart Myers's concept of debt overhang and underinvestment, the authors hypothesize that companies can encourage their suppliers and other key stakeholders to make such specialized investments by limiting their use of debt financing, thereby addressing their stakeholders' concerns about their long-term performance and staying power. Copyright (c) 2008 Morgan Stanley.

Suggested Citation

  • Jayant R. Kale & Husayn Shahrur, 2008. "Corporate Leverage and Specialized Investments by Customers and Suppliers," Journal of Applied Corporate Finance, Morgan Stanley, vol. 20(4), pages 98-104.
  • Handle: RePEc:bla:jacrfn:v:20:y:2008:i:4:p:98-104
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