Supply chain, product pricing, and dynamic capital structure

Chang Chih Chen, Henry Hongren Huang, Chun I. Lee

Research output: Contribution to journalArticlepeer-review

3 Scopus citations


This paper examines how firms' reliance on a supply chain affects their capital structure decisions via the suppliers' product pricing. In our model, a firms’ reliance on a supply chain results in either a risk-amplification effect or a hedge effect, depending on the direction and magnitude of product demand correlations between firms along the supply chain. The risk-amplification (hedge) effect leads firms to reduce (increase) their leverage, pay a higher (lower) interest rate for debt, and take a more conservative (aggressive) leverage adjustment policy. Our model further captures several supply-chain-specific phenomena such as the EBIT bullwhip, risk propagation, and the supplier-driven vertical spillover effect.

Original languageEnglish
Pages (from-to)938-952
Number of pages15
JournalInternational Review of Economics and Finance
StatePublished - Jul 2022


  • Bullwhip effect
  • Leverage
  • Product price
  • Supply chain
  • Vertical spillover


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