Supplier Concentration, Interfirm Relationships, and Cost Structure

In this study, we examine the association between supplier concentration and cost flexibility and how such association varies with the buyer firm's bargaining power and the nature of buyer-supplier relationship. Drawing on prior literature, we predict that there is a positive association between supplier concentration and cost flexibility, but this association will be mitigated when the buyer firm has greater bargaining power over its suppliers or when the buyer-supplier relationship is more cooperative. Using a unique dataset of 4,530 firm-year observations hand-collected from supplier information disclosed by Chinese listed firms, we find results consistent with our predictions. Our study contributes to the cost management literature by providing empirical evidence on firms' cost structure decisions in response to supply side risk factors. Our study also complements the accounting literature on interfirm relationships by documenting the impact of interfirm relationships on firms' cost structure decisions