The analysis of the effect of the buyer leverage on the supplier leverage

Modigliani and Miller’s (M&M) irrelevance theory implies that the firm’s value is not affected by how the business fund is capital structure. Therefore, it is assumed that the financial leverage between the buyer and supplier has no positive effect on the business market value. It contradicts the bargain theory of capital structure, which stipulates that the firm’s debt increases their bargaining power against the supplier and therefore would stipulate an increase in firm market value. In addition, further research indicates that when customer leverage increases, both supplier and firm may wish to do the same to minimize exposure to financial risk and remain competitive. (PDF) Capital Structure Along the Supply Chain: How Does Customer Leverage Affect Supplier Leverage Decisions?,2021). However, there is limited research to understand how the leverage between the buyer and supplier affects the business’s market value and whether it has a positive or negative effect. It could be argued that a consistent fluctuation of the leverage could lead to damaged relationships and market disruption allowing the customer to take advantage and giving higher bargaining power to drive pricing down. (Optimal Use of Financial Leverage in a Corporate Capital Structure, Investopedia, 2021).
Capital financing through raising debt has always been put under scrutiny by corporate finance as it often can be detrimental to the business and lead to bankruptcy.
To derive the research question answer, I will test the implications of the two main capital structure theories and apply them to the business in the telecommunication industry.
Over the years, we have seen significant growth of investment in the technology sector, particularly telecommunications. The consumer demand primarily drives this demand. It has been more apparent when Corona Virus disease outbreak in 2020 as it enabled people to travel. Therefore, most people globally had to set up a remote working place. As more people and businesses relied on the internet, telecom providers had responded to that demand by raising finance to fund the development of required infrastructure for the growing need for internet speed, resilience, and capacity. (Wieck and Vidal, 2021)
Research questions

⦁ How does supplier leverage affect firms’ market value?
⦁ How does buyer leverage affect firms’ market value?
⦁ How does customer leverage affect supplier leverage decisions?
⦁ How does buyer-supplier leverage affect firms’ market value?
⦁ How does supplier and buyer capital structure affect the firm’s profitability?