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The impact of corporate distress along the supply chain: evidences from United States

Lucia Gibilaro (Department of Management, Economics and Quantitative Methods, University of Bergamo, Bergamo, Italy)
Gianluca Mattarocci (Department of Management and Law, University of Rome Tor Vergata, Roma, Italy)

Supply Chain Management

ISSN: 1359-8546

Article publication date: 8 May 2019

Issue publication date: 11 June 2019

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Abstract

Purpose

The aim of the study is to provide evidence on the distress in the supply chain and its impact on the trade credit policy, firms’ performance and risk and their growth opportunities. Trade credit creates a strict relation between suppliers and customers that cannot be easily substituted over time. The linkages established between firms in a supply chain are a key value added for all members that could represent a competitive advantage over independent market players. In the event of a supply chain disruption, all members could suffer from a decrease in profitability and an increase in risk. Nonetheless, no empirical evidence exists on the expected economic and financial effects on pertinent suppliers and customers.

Design/methodology/approach

This paper examines the US market and evaluates the impact of a supply chain member’s default on the other members, looking at both the customers’ and suppliers’ default. The sample considers all firms in the USA disclosing entry into bankruptcy proceedings through EDGAR filings that were not classified as financial intermediaries between 2012 and 2016. The analysis considers the effect of distress on the supply chain (suppliers or customers) on the trade credit policy, performance, risk and growth perspectives of connected firms.

Findings

The results show that a supply chain disruption not only modifies the trade credit policy but also affects firm risk and profitability and the financing sources available to support firm growth. Empirical evidence shows that the bankruptcy of a member of the supply chain affects the trade credit policy of all the other members. The costs related to default are economically and financially relevant to all supply chain members and affect the resiliency of the supply chain beyond the short term.

Originality/value

This paper uses an original and innovative database to empirically test the impact of corporate distress on supply chain financing, performance, risk and growth opportunities.

Keywords

Acknowledgements

The authors are grateful to the two anonymous referees for all the useful suggestions provided for improving this paper. This paper is the result of the authors’ common efforts and continuous exchange of ideas. The individual parts of the paper can be acknowledged as follows: the introduction and literature review were worked out by Gianluca Mattarocci and all the other sections, by Lucia Gibilaro.

Citation

Gibilaro, L. and Mattarocci, G. (2019), "The impact of corporate distress along the supply chain: evidences from United States", Supply Chain Management, Vol. 24 No. 4, pp. 498-508. https://doi.org/10.1108/SCM-08-2018-0275

Publisher

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Emerald Publishing Limited

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