Your Debt Matters to My Business: Spillover Effect of Buyers’ Debt Structure on Suppliers’ Credit Risk

This study investigates how buyers’ debt structure affects suppliers’ credit risk using 2,551 effective buyer–supplier pair years from 2009 to 2022. We find that buyers’ trade credit increases the credit risk of their suppliers, and their bank loans reduce the credit risk of suppliers. The impact of buyers’ debt structure on their suppliers’ credit risk is moderated by buyer-supplier dependence: A higher level of buyers’ stability strengthens, but a higher level of buyers’ industry competition weakens the impact. Moreover, buyers’ deposits received have a higher impact on suppliers’ credit risk than accounts payable and notes payable do, showing the more significant role of product delivery risk compared to debt repayment risk. Buyers’ long-term bank loans dominate suppliers’ credit risk compared with guaranteed loans and collateralized loans. Suppliers should monitor their buyers’ debt structure to manage credit risk and mitigate the contagious effect of credit risk along the supply chain.