Debt and Supplier Diversification

Abstract

Using a dataset of both public and private firm connections, I find a 1.5-percentage-point increase in long-term book leverage of a firm leads to a 10-percentage-point increase in the probability it adds an additional supplier. At the same time, I do not find significant increases in sales or accounts payable. The supplier diversification effect is slightly but not significantly larger for bigger firms and those in more concentrated industries and smaller for B2B firms and those with higher input specificity. These findings are consistent with firms simultaneously optimizing capital structure and supplier networks to trade-off disruption risks.