Idiosyncratic Shocks of Peer Firms of Suppliers and Customers and Corporate Bond Yield Spreads

The study investigates how the idiosyncratic risks of peer firms of suppliers/ customers affect corporate bond yield spreads. We use the average stock return shocks of the peer firms as a proxy of the change of the peer firm’s capital structures, which is developed by Leary and Roberts(2014). The results show that both the idiosyncratic risks of peer firms of suppliers and customers negatively affect a firm’s credit spread. In addition, more important customers have more significant effects while more important suppliers do not have this kind of effect compared to non-main suppliers.