Damage to the Transportation Infrastructure and Disruption of Inter-firm Transactional Relationships

Author Name HOSONO Kaoru (Faculty Fellow, RIETI) / MIYAKAWA Daisuke (Hitotsubashi University) / ONO Arito (Chuo University) / UCHIDA Hirofumi (Kobe University) / UESUGI Iichiro (Faculty Fellow, RIETI)
Creation Date/NO. June 2019 19-E-043
Research Project Study Group on Corporate Finance and Firm Dynamics
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We investigate the effects of an exogenous increase in transportation costs caused by the disruption of a highway due to the Tohoku Earthquake in Japan, on inter-firm transactional relationships and firm performance. We find that as the transit time to partner firms (suppliers and customers) increased due to the disrupted highway, the likelihood of continued transactional relationships decreased. This effect is more pronounced when the corresponding partner is a customer with a lower share of sales. We also find that the disruption to the transactional relationships deteriorates the firms' ex-post business conditions and credit scores.