Supplier financing and managerial information hoarding: monitoring versus concessions?

This paper examines the relation between supplier financing and customer firms’ information hoarding behavior, proxied by future stock price crash risk. We find that supplier financing is negatively associated with stock price crash risk, consistent with suppliers effectively monitoring buyers through trade credit provision and therefore constraining their bad-news-hoarding behavior. This relationship holds in a battery of identification tests that address endogeneity, including a difference-in-differences analysis based on an amendment in the U.S. bankruptcy code. Further tests reveal that the role of supplier financing in mitigating stock price crash risk is more pronounced among customers with weaker market power, higher distress risk, and weaker alternative governance and monitoring mechanisms.