Managing liquidity along the supply chain: Supplier-base concentration and corporate cash policy

We find that customer firms with more concentrated supplier bases tend to hold higher levels of cash reserves. The positive relation between supplier-base concentration and cash holdings is more pronounced for firms with nonstate ownership, higher market competition, worse inventory efficiency, more relationship-specific investment, central positions in the production networks, and headquarters located in regions with lower levels of financial development. Furthermore, we show that debt issuance enhances firms' cash holdings when they have concentrated suppliers, and supplier-base concentration increases firms' cash spending on R&D investment. Our study highlights the importance of supplier structure in shaping corporate cash policy.