The Economic Consequences of Vertical Common Ownership: From the Perspectives of Investors and Creditors


Student thesis: Doctoral Thesis

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Related Research Unit(s)


Awarding Institution
  • Haibin WU (Supervisor)
  • Gaoliang Tian (External person) (External Supervisor)
Award date27 Feb 2023


Supply chain risk is one of the key components of corporate business risk. When a firm enters a contractual relation with a supply chain partner, it faces the risk of post-contractual opportunism or hold-up by the partner due to an incomplete bilateral contract. It is important to determine if an existing mechanism can improve cooperation between supply chain partners to reduce post-contractual opportunism and hold-up problems. This thesis aims to test whether a firm’s common ownership with its major customers (i.e., vertical common ownership) can alleviate these concerns and influence its stakeholders’ financial decisions. Specifically, I focus on two of the firms’ direct stakeholders—corporate investors and creditors, and investigate the association between vertical common ownership, expected crash risk and cost of bank loans.

The main conclusions of this thesis can be described as follows. First, when supplier firms have common institutional ownership with their major customers, they have lower incentives in hoarding bad news, reflected by decreased expected crash risk. Second, vertical common ownership can also lower the default risk perceived by corporate creditors and thus negatively influence bank loan costs. Third, coordination and monitoring are two mechanisms wherein vertical common ownership influences companies’ behaviors and shapes stakeholders’ perceptions. The baseline associations are stronger for supplier firms with more hold-up issues, weaker bargaining power, long-term common owners, less transparent information environment and weaker financial positions. Fourth, the main findings still hold when using quasi-natural experiments based on financial institutions’ M&As, supplier-customer pair data, and a series of other robustness tests. I also compare supply chain vertical common ownership with horizontal common ownership among industry peers and demonstrate the significant incremental contributions of my research. Fifth, I find vertical common ownership is related to greater trade credit provision, fewer storage inventories, and a raised level of financing and investment for the supplier firm. Overall, this thesis provides evidence that vertical common ownership can better coordinate the behaviors between supplier firms and their commonly owned customers, monitor firms and reduce information asymmetry, thus reducing post-contractual opportunism and the hold-up risk. Consequently, firms will have lower expected crash risk and cost of bank loans as perceived by their capital market investors and creditors.

    Research areas

  • Vertical common ownership, Supply chain, Hold-up problem, Crash risk, Cost of bank loans