Customers’ Debt Financing and Suppliers’ Innovations

Abstract

In this study, we empirically investigate the influence of customers’ debt financing on suppliers’ innovation activities, measured by the number of patents, exploration, and exploitation. We find that syndicated loan issuance to key customers positively impacts the number of patents held by suppliers, primarily due to an increase in exploration activities. The results are stronger when the size of the loan to the key customer is larger. Additional tests indicate that the positive effects of customers’ debt financing on suppliers’ exploration weakens when suppliers exhibit a high economic dependence on these customers.