Riding the waves of change: impact of buyer M&As on supplier relocation

Abstract

Suppliers often face the strategic decision of whether to relocate production closer to major buyers. While such relocation can improve coordination, demand stability, and operational alignment, it also constitutes a relationship-specific investment that deepens dependence and limits suppliers' outside options. Focusing on domestic supplier relocation, we examine how buyer mergers and acquisitions (M&As), as major shocks to buyer-supplier relationships, reshape the opportunity and vulnerability conditions underlying suppliers' relocation decisions, and we identify the conditions under which suppliers engage more extensively in such investments. We examine a panel of U.S. publicly listed firms from 2004 to 2020 that links supply chain relationships (FactSet Revere), plant locations (NETS), M&A activity (SDC Platinum), and firm financials (Compustat). The final estimation sample comprises 15,946 buyer-supplier-year observations across 3,689 unique buyer-supplier dyads, involving 958 buyers and 699 suppliers. Buyer M&As increase supplier relocation. This effect is stronger when buyer M&As create greater post-deal opportunities for suppliers, particularly through downstream M&As and higher buyer asset turnover, and weaker when relocation heightens dependence-related vulnerability, especially when the buyer possesses stronger bargaining power over the supplier. Additional analyses show that greater buyer betweenness centrality weakens this effect. Post-M&A supplier relocation also increases suppliers' sales to focal buyers and supplier R&D investment while improving both parties' cash-flow performance. This study offers a supplier-centered perspective by showing that buyer M&As affect suppliers' relationship-specific investment in plant location.