IDEAS home Printed from https://ideas.repec.org/a/eee/jfinin/v24y2015i4p537-563.html
   My bibliography  Save this article

Monitoring role of customer firms in suppliers and its effect on supplier value: Evidence from block acquisitions of suppliers by customer firms

Author

Listed:
  • Kang, Jun-Koo
  • Liu, Wei-Lin
  • Yi, Sangho
  • Zhang, Le

Abstract

Using a large sample of block acquisitions, this paper examines the governance role of customers that acquire block ownership in supplier shares. We find that compared to targets acquired by noncustomers, those acquired by customers experience higher abnormal announcement returns, larger increases in post-acquisition long-term operating performance, and higher non-routine turnover of poorly performing CEOs. These results are evident when target managerial agency problems are highly detrimental to the supplier–customer relationship. The results support the view that customers’ nonfinancial claims in targets provide customers strong incentives to monitor target managers above and beyond previously documented monitoring by large shareholders.

Suggested Citation

  • Kang, Jun-Koo & Liu, Wei-Lin & Yi, Sangho & Zhang, Le, 2015. "Monitoring role of customer firms in suppliers and its effect on supplier value: Evidence from block acquisitions of suppliers by customer firms," Journal of Financial Intermediation, Elsevier, vol. 24(4), pages 537-563.
  • Handle: RePEc:eee:jfinin:v:24:y:2015:i:4:p:537-563
    DOI: 10.1016/j.jfi.2014.07.002
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S1042957314000552
    Download Restriction: Full text for ScienceDirect subscribers only

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Henrik Cronqvist & Fredrik Heyman & Mattias Nilsson & Helena Svaleryd & Jonas Vlachos, 2009. "Do Entrenched Managers Pay Their Workers More?," Journal of Finance, American Finance Association, vol. 64(1), pages 309-339, February.
    2. C. Edward Fee & Charles J. Hadlock & Shawn Thomas, 2006. "Corporate Equity Ownership and the Governance of Product Market Relationships," Journal of Finance, American Finance Association, vol. 61(3), pages 1217-1251, June.
    3. Titman, Sheridan & Wessels, Roberto, 1988. " The Determinants of Capital Structure Choice," Journal of Finance, American Finance Association, vol. 43(1), pages 1-19, March.
    4. Oliver D. Hart, 1983. "The Market Mechanism as an Incentive Scheme," Bell Journal of Economics, The RAND Corporation, vol. 14(2), pages 366-382, Autumn.
    5. Clifford G. Holderness, 2003. "A survey of blockholders and corporate control," Economic Policy Review, Federal Reserve Bank of New York, issue Apr, pages 51-64.
    6. Denis, David J. & Denis, Diane K. & Sarin, Atulya, 1997. "Ownership structure and top executive turnover," Journal of Financial Economics, Elsevier, vol. 45(2), pages 193-221, August.
    7. Andrei Shleifer & Lawrence H. Summers, 1988. "Breach of Trust in Hostile Takeovers," NBER Chapters,in: Corporate Takeovers: Causes and Consequences, pages 33-68 National Bureau of Economic Research, Inc.
    8. Shleifer, Andrei & Vishny, Robert W, 1997. " A Survey of Corporate Governance," Journal of Finance, American Finance Association, vol. 52(2), pages 737-783, June.
    9. Williamson, Oliver E, 1979. "Transaction-Cost Economics: The Governance of Contractural Relations," Journal of Law and Economics, University of Chicago Press, vol. 22(2), pages 233-261, October.
    10. Maksimovic, Vojislav & Titman, Sheridan, 1991. "Financial Policy and Reputation for Product Quality," Review of Financial Studies, Society for Financial Studies, vol. 4(1), pages 175-200.
    11. repec:hrv:faseco:30728046 is not listed on IDEAS
    12. Shleifer, Andrei & Vishny, Robert W, 1986. "Large Shareholders and Corporate Control," Journal of Political Economy, University of Chicago Press, vol. 94(3), pages 461-488, June.
    13. Klein, Benjamin & Crawford, Robert G & Alchian, Armen A, 1978. "Vertical Integration, Appropriable Rents, and the Competitive Contracting Process," Journal of Law and Economics, University of Chicago Press, vol. 21(2), pages 297-326, October.
    14. M. Pagano & P. F. Volpin, 2005. "Managers, Workers, and Corporate Control," Journal of Finance, American Finance Association, vol. 60(2), pages 841-868, April.
    15. Titman, Sheridan, 1984. "The effect of capital structure on a firm's liquidation decision," Journal of Financial Economics, Elsevier, vol. 13(1), pages 137-151, March.
    16. Heckman, James, 2013. "Sample selection bias as a specification error," Applied Econometrics, Publishing House "SINERGIA PRESS", vol. 31(3), pages 129-137.
    17. Aghion, P. & Tirole, J., 1993. "On the Management of Innovation," Working papers 93-12, Massachusetts Institute of Technology (MIT), Department of Economics.
    18. Grossman, Sanford J & Hart, Oliver D, 1986. "The Costs and Benefits of Ownership: A Theory of Vertical and Lateral Integration," Journal of Political Economy, University of Chicago Press, vol. 94(4), pages 691-719, August.
    19. Jeffrey W. Allen & Gordon M. Phillips, 2000. "Corporate Equity Ownership, Strategic Alliances, and Product Market Relationships," Journal of Finance, American Finance Association, vol. 55(6), pages 2791-2815, December.
    20. Faleye, Olubunmi & Mehrotra, Vikas & Morck, Randall, 2006. "When Labor Has a Voice in Corporate Governance," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 41(03), pages 489-510, September.
    21. Acs, Zoltan J. & Isberg, Steven C., 1991. "Innovation, firm size and corporate finance : An initial inquiry," Economics Letters, Elsevier, vol. 35(3), pages 323-326, March.
    22. Tirole, Jean, 2001. "Corporate Governance," Econometrica, Econometric Society, vol. 69(1), pages 1-35, January.
    23. Jensen, Michael C, 1986. "Agency Costs of Free Cash Flow, Corporate Finance, and Takeovers," American Economic Review, American Economic Association, vol. 76(2), pages 323-329, May.
    24. Opler, Tim C & Titman, Sheridan, 1994. " Financial Distress and Corporate Performance," Journal of Finance, American Finance Association, vol. 49(3), pages 1015-1040, July.
    25. Sanford J. Grossman & Oliver D. Hart, 1980. "Takeover Bids, the Free-Rider Problem, and the Theory of the Corporation," Bell Journal of Economics, The RAND Corporation, vol. 11(1), pages 42-64, Spring.
    26. Philippe Aghion & Jean Tirole, 1994. "The Management of Innovation," The Quarterly Journal of Economics, Oxford University Press, vol. 109(4), pages 1185-1209.
    27. Williamson, Oliver E, 1983. "Credible Commitments: Using Hostages to Support Exchange," American Economic Review, American Economic Association, vol. 73(4), pages 519-540, September.
    28. Powers, Eric A., 2005. "Interpreting logit regressions with interaction terms: an application to the management turnover literature," Journal of Corporate Finance, Elsevier, vol. 11(3), pages 504-522, June.
    29. Shantanu Banerjee & Sudipto Dasgupta & Yungsan Kim, 2008. "Buyer-Supplier Relationships and the Stakeholder Theory of Capital Structure," Journal of Finance, American Finance Association, vol. 63(5), pages 2507-2552, October.
    30. Su, Han Chan & Kensinger, John W. & Keown, Arthur J. & Martin, John D., 1997. "Do strategic alliances create value?," Journal of Financial Economics, Elsevier, vol. 46(2), pages 199-221, November.
    31. Jun-Koo Kang & Jin-Mo Kim, 2008. "The Geography of Block Acquisitions," Journal of Finance, American Finance Association, vol. 63(6), pages 2817-2858, December.
    32. William C. Johnson & Jun‐Koo Kang & Sangho Yi, 2010. "The Certification Role of Large Customers in the New Issues Market," Financial Management, Financial Management Association International, vol. 39(4), pages 1425-1474, December.
    33. Weisbach, Michael S., 1988. "Outside directors and CEO turnover," Journal of Financial Economics, Elsevier, vol. 20(1-2), pages 431-460, January.
    34. Maria Guadalupe & Francisco Perez-Gonzalez, 2006. "The Impact of Product Market Competition on Private Benefits of Control," Hi-Stat Discussion Paper Series d05-159, Institute of Economic Research, Hitotsubashi University.
    35. Fee, C. Edward & Thomas, Shawn, 2004. "Sources of gains in horizontal mergers: evidence from customer, supplier, and rival firms," Journal of Financial Economics, Elsevier, vol. 74(3), pages 423-460, December.
    Full references (including those not matched with items on IDEAS)

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:jfinin:v:24:y:2015:i:4:p:537-563. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Dana Niculescu). General contact details of provider: http://www.elsevier.com/locate/inca/622875 .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.