This paper investigates the understudied role of political connections in shaping buyer-supplier relationships, utilizing the value-based framework. We hypothesize that a firm’s connections with the government enhance its outside options, hence its ability to capture value in transactions. We leverage the empirical opportunity to quantify the value acquired by the supplier by examining the trade credit it extends to buyers. We manually extracted buyer-supplier-pair level trade credit data for publicly listed U.S. firms. We find that an increase in a firm’s political connections decreases the trade credit it extends to buyers, particularly the financially risky ones and those with a shorter duration of transactional relationships. The study sheds light on the benefits of political connections in enhancing firms’ value appropriation in their supply chains.
