A paper named”The effect from strength of relationship between the upstream and downstream on the capital structure of suppliers—the evidence from China manufacturing listed corporation”, which was jointly written by vice professor Wang Tingting and two undergraduates Fu Xuan and Xia Yun, was invited to attend the Seventh International Symposium on corporate governance held in Tianjing University from 7th to 8th, September, 2013.

The paper combines the industrial organization theory and enterprise capital structure choice, and uses fixed effects model to implement regression analysis on related financial data of Shanghai, Shenzhen motherboard manufacturing listed corporation from 2002 to 2010.The aim is to explore the relationship between the customer concentration and capital structure of supplier enterprises. The empirical evidence shows that the higher customer concentration, correspondingly the smaller debt ratio in Chinese market.

In recent years, the importance of the relationship between the upstream and downstream, as an important strategic resource of enterprises, is increasingly prominent.Dyer and Singh (1998) proposed a concept called "the relational rents ",that stable relationship between the upstream and downstream can create more excess profits for the enterprise, and to help maximize the value of it. The excess profits come from the investment on relational specific assets, information sharing, low transaction costs and the integration of complementary resources. Thus it is called "the relational rents". However, with the increasing trend of enterprise professional operation and the fade of heat in vertical integration inside the industry, more and more upstream suppliers and downstream customers replace the vertical control with the corporation relationship,（Commentand Jarrell，1995；Zingales，2000；Denis et al.，2002；Dimitrov和Tice，2006），which results in the decrease in stability in relationship between the upstream and downstream. The impact, which the potential change in the corporation relationship between the upstream and downstream have on the enterprise production operation, financial decision and even the performance, becomes the hot focus of many researchers.

Although the suppler-customer relationship between the upstream and downstream has been the key issue in the industry organization theory research, the study on capital structure is less involved. In fact,supplier - customer relationship has a great effect on the capital structure of enterprises. On the one hand, as stable relationship between the upstream and downstream can bring enterprises direct or indirect benefits, enterprises will have the motivation to maintain this relationship.Through keeping a low debt ratio in the capital structure, the suppler which produce the unique goods can send the small possibility of bankruptcy signal to the customers in order to trigger them to invest in relational specific assets, so that the relationship between the upstream and downstream will be more stable. This is the strategic commitment effect of the capital structure.On the other hand, suddenly break up in the cooperation relationship between the upstream and downstream will the supplier's cash flow abnormally fluctuates and decrease its ability to repay the debt. Especially to the suppliers which have a high dependence on the customer relationship,a great loss of customers will probably make it fall into the financial crisis. For the prevention of potential changes in the downstream customer relationship, upstream supplier will have the motivation to keep a low debt ratio to reduce the possibility of falling into financial crisis. This phenomenon is called the preventive effect of capital structure.

Recently, the studies on the impact from supplier-customer relationship on the enterprise capital structure mainly focus on strategic commitment effects of capital structure and have less concern on preventive effect of capital structure.Studies of some foreign scholars show that strategic commitment effects of capital structure does exist (Titman, 1984; Titman and Wessels, 1988; Banerjee et al., 2008; Itzkowitz, 2013).Itzkowitz (2013) tests preventive effect of capital structure based on the data from USA manufacturing industry and finds that the impact from supplier's preventive motivation on the capital structure is not significant.

The paper uses data from China Shanghai and Shenzhen motherboard manufacturing listed corporation to test and gains the conclusion different from the foreign existing research. That is preventive effect of capital structure in the Chinese market is more dominant. The paper has a further discussion on the cause of Chinese and foreign research conclusions differences. It believes that as our country’s financial markets and financial institutions are embedded into the framework of financial repression in the transition period, bank credit rationing still exists and the capital market is not sufficiently developed, thus our country’s enterprise, compared with enterprises in western developed countries, has a stronger financial constraint. This constraint may lead to the supplier preventive motivation and make them are more willing to keep low debt ratio.

Conclusions have important significance and implications for capital structure arrangement of Chinese supplier enterprises, which indicates that when deciding enterprise capital structure, they should fully consider the strength of supplier - customer relationship. To prevent the enterprise from falling into the financial crisis because of the suddenly break up in the important customer relationship, the enterprise have a corresponding decrease in the financial leverage when customer concentration is high. Besides, the conclusion of the paper also has a significanceforour country's regulatory authorities to grasp the IPO audit criteria to some extent.

The thirty-seventh regulation in" Measures on Administration of Initial Public Offering and Listing on Board ", promulgated by China Securities Supervision and Management Committee in 2006, clearly defines that the issuer mustn’t appear in the situation that " operating income or net profit a fiscal year recently has a significant dependence on the customers who might have great uncertainty of related party ".

In the practice of issuance examination in recent years, too much concentration in the customer focus has also become an important reason why many enterprises IPO are not approved.Generally speaking, the focus of the issuance examination on the customer concentration is in four points: whether large customer sales ratio is stable,the first big customer’sconcrete ratio , whether the concentration is involved in related party transactions as well as whether it results from the objective industry characteristics factors. However, the capital structure adjustments of the supplier enterprises are less taken into account. The conclusion of the study provides a new concern for our country's IPO audit, which indicates that the adaptability of enterprise capital structure adjustment for customer concentration change should be considered in the audit.

[International Symposium on corporate governance is initiated by Management Institute of Nankai University and has been held seven times. Every year it attracts many scholars at home or abroad who pay attention to the enterprise management to participate in. This year’s conference, jointly held by Business School of Nankai University, China Corporation Management Institute, China Listed Corporation Association and other institutions, has a deep research and discussion on corporation governance mode, enterprise system innovation, risk and corporation governance evaluation, family business mode and other hot issues.]