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.
