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The bargaining theory of capital structure implies that when firms raise their leverage, their suppliers will raise their own leverage in response, so as to maintain strength in negotiations with important customers. In contrast, the theory of firm-specific investments implies that when a customer raises its leverage, a firm will respond by lowering its own leverage to minimize the risk of bankruptcy. We test these theories by examining the relationship between the leverage decisions of suppliers and customers. We find that a firm’s leverage is positively associated with its customer’s leverage. Moreover, consistent with the bargaining theory, we find that the positive leverage relationship is stronger if the customer has a higher ex-ante bargaining power. We also find some support for the relation-specific investment theory of capital structure in that the positive leverage relationship is weaker if the supplier–customer relationship requires more relation-specific investments.

We examine if firms with directors with related industry expertise (DRIs), or directors that are supply chain partners, exhibit a greater propensity to forecast earnings, and improve the specificity and accuracy of forecasts. Using instrumental variables to mitigate endogeneity, we find that DRIs and supply chain partners possess unique insights which improve managerial forecasts especially when there is greater earnings uncertainty (innovations along the supply chain, poor performance, operating in volatile industries). We use director deaths as exogenous shocks to board composition and confirm results. Results indicate that DRIs play an informational role in enhancing voluntary disclosures and improving corporate transparency.