EXPRESS: Mind the Cost of Disturbance: Firm-Level Supply Chain Risk and the Bank Loan Cost

This study investigates whether and how supply chain risk, a core operational vulnerability, is priced in financial credit markets. Using a novel text-based firm-level measure, we show that elevated supply chain risk leads to higher loan interest spreads. Exploiting natural disasters as exogenous shocks to production networks, we provide causal evidence that shocks increase perceived supply chain fragility and, in turn, raise borrowing costs. These effects are amplified when lenders face greater private-information deficiency, and are further strengthened when external information production is more intensive — the former heightening lenders’ concern over supply chain exposure, the latter enhancing their capacity to recognize and price it. Critically, lenders treat supply chain fragility as a form of credit risk: firms with higher supply chain risk face increased default risk, and firms whose production networks are struck by supplier disasters face a higher probability of covenant violation and tighter covenant restrictions, signaling lenders’ anticipation of repayment difficulties. Our findings highlight a new financial consequence of operational risk, showing that supply chain disruption directly affects corporate financing outcomes.