We examine the effect of increased customer industry competition on relationships with suppliers, using exogenous variation in industry-level tariffs. We find that customers facing significant tariff reductions increase output by increasing product purchases and maintaining longer relationship durations with existing suppliers. These results are concentrated in strategically important suppliers such as those that have stronger prior relationship ties to customers and among those suppliers that are financially constrained due to capacity constraints among suppliers. However, customers who increase purchases from financially constrained suppliers perform poorly in the post-tariff reduction period. Overall, our results indicate that an increase in customer industry competition improves suppliers’ bargaining power and has both intended and unintended consequences for customers’ trading relationships and future performance.

We investigate how lender default shocks impact corporate investment. Lenders with recent default experience write stricter loan contracts, especially to borrowers with pre-existing relationships, leading to a reduction in real investment for all borrowing firms. The decline in investment is more pronounced when agency problems with creditors like asset substitution and claim dilution are higher. Moreover, the decline in investment is not attributable to more frequent covenant violations or to market conditions. The evidence highlights the role of supply-side frictions through the asset side of lenders’ balance sheets on corporate investment and how agency problems may act as mechanisms.