This paper examines the effects of a firm’s IPO on the debt financing of its key customer firms. We find that the average loan spreads of customer firms increase by roughly 20% or 23.7 basis points following suppliers’ IPO announcements. This negative spillover effect along supply chains is more pronounced when suppliers make significant relationship-specific investment, when the suppliers face less concentrated customer bases, and/or when the customers face more concentrated supplier bases. Our results show that a customer receives less favorable trading terms and is forced to purchases more inputs at higher prices after its supplier goes public, all of which affect the customer’s operational cost and risk and hence contribute to the increase in loan costs. Furthermore, we document that the loan contracts of customers become significantly more restrictive in the aftermath of supplier IPOs. Finally, we find that the observed negative spillover effect is also present in customers’ access to the public bond market. 

JEL classification: G24; G34
Keywords: Supplier IPO; loan spreads; supplier–customer relationships; syndicated bank loans​