Firm Power In Industrial Chain And Debt Financing

The status of an enterprise in the upstream and downstream industry chain has an important impact on its business decisions.However,few studies have explored the impact of upstream and downstream industry chain relationships on corporate financial behavior.The purpose of this article is to build a value chain power index(or measure)that reflects the status of the company's upstream and downstream industry chains through its capital exchange relationship with upstream and downstream enterprises,and to explore its impact on corporate financing behavior,capital structure decisions,and company performance.Classical theory often explains its relationship with upstream and downstream enterprises from the perspective of enterprise working capital management.However,a large number of recent studies show that the structure of enterprise working capital is largely determined by the company's position in the upstream and downstream industry chain.For this reason and in concordance with the work of Zhang Xinmin,2012 this paper defines the value chain power as the ratio of accounts payable minus accounts receivable to sales revenue.Intuitively,the larger this indicator is,the higher the ability of an enterprise to occupy funds of upstream and downstream enterprises,reflecting the relatively strong competitiveness of the enterprise.Using this indicator,this article explores the impact of corporate value chain power on its external financing liabilities,public debt financing,bank loan financing,and corporate performance in four separate themes.Panel 1 examined the impact of value chain power on corporate external financing liabilities.According to the definition,a company with a higher power chain index can obtain more business credit.In this way,the company's current assets and even some long-term assets can be met through interest-free business credit.High enterprises,low demand for external financing debt.The empirical results show that the companies with greater power in the value chain have a lower proportion of financing liabilities.This result is true for companies with different characteristics.This finding indicates that companies with higher value chain power use less financing liabilities and tend to use non-cost commercial credit for financing.It also confirms that there is a certain degree of substitution between commercial credit and financing liabilities.Topics 2 and 3 respectively studied the impact of value chain power on specific debt financing behaviors of enterprises(including public bond issuance and bank loans).The higher the power of the enterprise value chain,on the one hand,it shows that downstream customers are less in arrears on their purchases,which reflects their relative discourse right to downstream customers;on the other hand,it shows that upstream suppliers have a stronger dependence on them,which reflects their upstream supply business negotiation power.In this way,companies with higher power in the value chain often have higher ability to expand sales and control costs,and more secure future profitability and operating cash flow.Therefore,when other conditions are the same,as a creditor,he is more willing to provide more financing facilities for higher value chain power,including: larger financing scale,lower financing costs,and debt financing with longer term maturity.At the same time,companies with greater power in the value chain have greater autonomy and flexibility in the choice of debt financing.In this way,value chain power limitation is essentially an empirical issue.Session 2 Data on corporate bond issuance in the open market explores the impact of corporate value chain power on bond financing scale,issue cost,and bond financing maturity structure.The empirical results show that although there is no significant relationship between the power of the corporate value chain and the convenience of public bond financing in all samples,for small-scale and high-growth enterprises,the greater the value chain power,the greater the scale of bond financing The greater the cost,the lower the bond issue cost.This result shows that value chain power helps small and high-growth companies to obtain lower cost and larger debt financing in the open bond market.Interestingly,the greater the value chain power of small-scale,highgrowth companies,the higher the proportion of short-term debt in debt financing.Although longterm debt has higher stability and less risk of renewal,short-term debt costs are lower.Therefore,one possible explanation is that value chain power can help companies reduce future renewal risks.Therefore,companies do not have to worry too much about liquidity risks after short-term debts mature,so they choose lower-cost short-term debts.Panel 3 data on corporate bank loans explores the impact of corporate value chain power on the size of corporate financing through bank loans,issuance costs,and loan maturity structure.The empirical results show that for the entire sample,the value chain power has significantly increased the size of corporate loans,and has shown a significant reduction in bank interest rates only among large enterprises.This result shows that creditors represented by banks pay more attention to large enterprises,and the role of value chain power is only recognized by banks in large-scale and stable businesses.In addition,value chain power has no significant effect on the maturity of bank loans.Finally,this article further reveals the economic consequences of the impact of value chain power through the differences in corporate financial performance.Small-scale,high-growth companies with higher value chain power have better financial performance.The research in this paper has the following practical implications: First,although companies with higher value chain power do not have high external debt financing needs,their status in the upstream and downstream industry chains facilitates their financing in the open bond market.The effect is particularly significant for smaller companies with better future growth.Second,creditors in the open market place greater value on the value of power in the value chain when investing in small businesses,while creditors represented by banks generally prefer large companies and do not pay much attention to the information reflected in the value chain power of small and highgrowth companies.The innovation of this article is reflected in the following aspects: First,most of the previous literature discusses the structure of corporate working capital from the perspective of corporate working capital management strategies and the use of commercial credit,while this article creatively builds a reflecting enterprise based on the working capital structure.The value chain index of the relative position in the upstream and downstream industrial chains,and in-depth discussion of the impact on corporate financing behavior,further enriched the research on the impact of upstream and downstream industrial chain relationships on the true operation of enterprises.Second,the research in this article provides direct evidence that value chain power can affect corporate debt financing facilities.Value chain power can significantly reduce the issue cost of corporate bond financing and increase the scale of bond financing.Third,the research in this article points out that the impact of value chain power on different types of debt financing is heterogeneous: in public bond financing,small-scale,high-growth companies benefit more from value chain power;while in bank loans,although the value chain power as a whole helps to increase the scale of corporate bank loans,its role in reducing loan costs is only significant in large companies with stable operations.