Major Customers$ Expected Stock Price Crash Risk and Suppliers’ Bank Loan Contracting

This proposal intends to use the equity-market implied measure, stock price crashrisk, to examine the association between major customer’s expected stock price crashrisk and supplier’s bank loan contracting. By using the sample from 1995-2015, weuse three measures to measure major customers’ expected stock price crash risk andfour measures to capture all aspects of loan contracting. We expect to find (1) higherexpected stock price crash risk of major customers lead to higher interest rates andmore stringent non-price terms for loans to a supplier. (2) the effect of majorcustomers’ expected stock price crash risk on the contractual terms of loans to asupplier is less pronounced when the supplier has prior lending relationships with thelead banks than when it has no such prior lending relationship. (3) the effect of majorcustomers’ expected stock price crash risk on the contractual terms of loans to asupplier is more pronounced when the supplier has a longer relationship with itsmajor customers. (4) the effect of major customers’ expected stock price crash risk onthe contractual terms of loans to a supplier is more pronounced when the majorcustomers are from more concentrated industries.