Major-customer geographic proximity and the short-term loans for long-term investment of suppliers: evidence from China

Using a sample of Chinese A-share firms listed on the Shanghai and Shenzhen stock exchanges from 2008 to 2022, we empirically test the effect of major-customer geographic proximity on suppliers' short-term loans for long-term investment (SFL). We find that the closer the geographic distance between major customers and suppliers, the lower the level of suppliers' SFL. The mechanism analysis shows that the major-customer geographic proximity inhibits suppliers' SFL mainly through improving external governance and alleviating financing constraints. The cross-sectional analysis indicates that the positive effect of major-customer geographic proximity on suppliers' SFL is more pronounced for suppliers with higher customer concentration, higher market competition, and the same city as the top one customer. This study extends the research perspective on the determinants of maturity mismatch of investment and financing, and provides incremental evidence for the microeconomic effects of major-customer geographic proximity.