Banking Relationships and the Formation of Supply-Chain Relationships

I study the effect of banking relationships on the formation of new supply-chain relationships. I find that common banking relationships between a firm and a potential supplier increase the probability that the potential supplier will be selected to start a new supply-chain relationship. The effect is driven by firms in low-innovation industries. However, when accounting for the endogeneity of supply-chain and banking relationships, using bank branch location as an instrument for common banking relationships, the effect of common banks is negative, suggesting that supply-chain partners avoid common lenders for fear that sensitive information might leak through the bank to the supply-chain partner