Vertical common ownership, supply chain relationship and expected crash risk

Purpose Vertical common ownership (VCO) occurs when institutional investors hold ownership stakes in both supplier and customer firms simultaneously, creating an indirect link within the supply chain. This paper investigates how VCO can act as a flexible governance mechanism to enhance supply chain relationships and shape investor perceptions of crash risk. While extensive literature exists on horizontal common ownership (HCO) among competitors, research on VCO remains limited. This study aims to address this gap, offering valuable insights into supply chain management. Design/methodology/approach Using a US sample of 12,065 years-quarter observations from 1996 to 2018, I empirically test the impact of VCO on expected crash risk using OLS regressions and DiD approaches. Findings VCO with major customers can lower hold-ups, enhance supply chain efficiency and stability, improve internal information transparency and reduce information asymmetry with external stakeholders, thereby lowering supplier firms’ expected crash risk. This relationship is stronger for suppliers with lower bargaining power, long-term common investors and weaker financial positions. The findings remain robust when using quasi-natural experiments based on financial institutions’ M&As or supplier–customer pair data. Originality/value First, positioned at the intersection of finance and supply chain studies, this paper expands the study on supply chain relationships from an institutional investor perspective. Second, it provides new evidence on common ownership, highlighting that while HCO among industry peers has mixed effects, VCO positively coordinates and monitors supply chain partners. Third, this study extends the understanding of how supply chain relationships influence investors’ financial decisions by being the first to link VCO to expected crash risk.